A rate buydown is an arrangement where the borrower or a third party pays upfront fees or points at closing to temporarily lower the mortgage interest rate and monthly payments. This reduced rate typically lasts for a set period, such as one to three years.

For example, in a 2-1 buydown, the rate is reduced by 2% in the first year, 1% in the second year, and then returns to the original rate. Rate buydowns can make initial payments more affordable, helping borrowers qualify for larger loans or manage early financial challenges, especially if they expect their income to increase over time.