Elizabeth Kinsey explains the differences between mortgage buydown and ARM

Listen to the interview on Business Innovators Radio Network:
https://businessinnovatorsradio.com/interview-with-elizabeth-kinsey-loan-originator-with-prime-lending/

An adjustable rate mortgage (ARM) is a home loan with an interest rate that can change over time. The changes in the interest rate are tied to an index, such as B. the Secured Overnight Financing Rate (SOFR), which is used as a benchmark for setting interest rates. ARMs typically start out with lower interest rates than fixed-rate mortgages, but the interest rate adjusts periodically, usually annually or semi-annually, based on movements in the underlying index.

Mortgage buyback* refers to someone who pays extra points at closing to reduce their mortgage payments in the first few years of their loan life. Buydowns help borrowers by giving them a lower payment initially, as they make upfront payments on the interest to reduce the amount owed each month. These points can be paid for by a third party such as B. a house builder or the seller.

The reduced payments typically last one to three years, after which the lending rate adjusts to the current market rate and the payments could increase significantly. It’s important to note that while mortgage buybacks can provide relief for tight budgets, over time they increase the overall cost of borrowing.

Elizabeth said: “Both mortgage buydown and ARM loans offer pros and cons that you should carefully consider before making your choice. An ARM typically gives you a lower initial interest rate than a fixed-rate mortgage, but your payment could increase significantly if interest rates adjust. With a buyback, you can get a lower initial mortgage payment, but the additional cost will increase your overall borrowing costs over time. Ultimately, it’s important to weigh the pros and cons of both options to determine which best suits your needs.”

It is also important to remember that when choosing …