Builder buydown loan

Definition:

A mortgage loan on newly developed property that the builder subsidizes during the early years of the development. The builder uses cash to buydown the mortgage rate to a lower level than the prevailing market loan rate for some period of time. The typical buydown is 3% of the interest rate amount for the first year, 2% for the second year, and 1% for the third year (also referred to as a 3-2-1 buydown).

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Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University

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