What is a mortgage buydown?

A mortgage buydown is similar to buying mortgage points, where you pay extra money to reduce your monthly interest rates. With mortgage points, you lower your interest rates permanently, But with a mortgage buydown, you lower the interest rate temporarily by paying a lump sum. 

With a mortgage buydown, the interest rate is lowered to a certain percentage and then increases gradually to return to the original rate annually. The seller, homebuilder, or lender usually pays for the temporary buydown, and the temporary buydown offsets some of the buyer’s monthly payments. This money is deposited into an account and taken out every month by the lender. The borrower then needs to pay the original interest rate after the buydown expires.