of loans right now. These are still fixed rates, but allow for a buydown of the rate for a period of time. These are temporary buydowns, for the first year or two, aka 2/1 buydown. The buydown is usually negotiated with an offer asking the seller to cover the costs of the buydown. The seller is actually paying the difference of the principal and interest payment from the market rate and the buydown rate. Depending on the market this may be a good option for the buyer and the seller. There are also adjustable-rate mortgage (ARM). These typically are lower than the FRM rate, but it may change periodically. Usually, the interest rate is determined by a related economic index, such as the rate for Treasury securities. Borrowers who want lower monthly payments at first may benefit from an ARM. These types of loans are not for everybody but depending on the market may be a good option. If a borrower chooses an ARM, they usually will have a choice between an amortizing ARM and an interest-only ARM. An amortizing ARM is the most common type. With this type of mortgage, the lender calculates a monthly payment that will pay off the entire mortgage balance within the term of the loan (usually 30 years). However, since ARM loans don’t have a fixed interest rate, the payments most likely will fluctuate over that time period, based on the market rates with each passing year (there usually is a top limit negotiated at the time of the loan). Conversely, an interest-only ARM is less common. This type of loan puts interest payments in a preset first term of the mortgage, with the actual loaned money (the principal) paid off after that term, with an amortized payment after the remainder term of the loan. These types of loans are less popular as they do have a greater riskier.
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