Question: What is a mortgage "buy-down?"

Answer: When you borrow money, there is a cost for its use. Usually, the cost to borrow money is paid-out over time in the form of interest, say $100,000 at 8 percent.

But, you might also pay 7.75 percent. This can be done with a "buy-down." Rather than paying 8 percent over the life of the loan, you instead pay some interest up-front at closing in the form of "points."

For instance, instead of paying 8 percent and no points, you might pay 7.75 percent and two points.

In general, since points are a cash cost up front, paying points makes the most sense when you expect the loan to be outstanding for a long time. Points paid for short-term financing can be very expensive.