What is a builder rate buydown and is it a good deal on new construction?

A rate buydown is when a builder (or seller) pays to lower your mortgage rate, either temporarily or permanently. A common version is a 2-1 buydown, where your rate is reduced by 2 points in year one and 1 point in year two before settling at the full rate. This lowers your early payments and can ease you into ownership. The catch: temporary buydowns end, so make sure you can afford the payment at the final, higher rate – qualify on that number, not the teaser. Also compare the buydown's value against a straight price reduction, which would lower your loan balance and payment permanently. Builders often prefer buydowns because they protect the sale price for comparable homes. Run the long-term payment at the real rate before deciding.