3/2/1 Buydown

 

This illustrates how the home may be more marketable by offering financing concessions to the buyer rather than lowering the price.

This is a fixed rate mortgage with the buyer qualifying at the note rate.  The seller would be pre-paying the interest in advance.

The payments are calculated at 3% less than the note rate for the first year and 2% less for the second year and 1% less for the third year.  The payments for the fourth and remaining years of the mortgage are at the note rate.

The cost of the buy down is the difference in the payments in the first, second, and third years from what they should have been.