Owning a home is a huge part of the American Dream. Just about everyone dreams of their own private space, whether it's a little house in the suburbs with a green lawn and a white picket fence, or a sprawling mansion in a gated community, or an industrial loft in a hip downtown neighborhood. No matter what your tastes are, just about everyone can relate to the goal of buying their own home. In order to achieve this goal the very large majority of us get mortgages from various lenders, whether they be banks, credit unions, savings & loans, or other financial institution. One kind of loan that many people find attractive is the adjustable rate mortgage, known as the ARM.
If you're out looking for a home, and money is tight (this is very often the case) you may encounter a seller who is offering you a buydown. A buydown is a fee, paid by the seller, that lowers your initial rate - from the lender (i.e., the bank) - below the total of the index and the margin. In other words, the seller uses the buydown to help you afford your mortgage more easily. The key word to remember here is "initial."
A buydown will affect your adjustable rate mortgage, in that it lowers your initial rate - but then that rate goes back up to where it would have been had there been no buydown offer. You'll get some sticker shock when that happens, seeing as your monthly payment will go up. And, with an ARM, the interest you pay on your mortgage loan goes up and down with market conditions, so if your initial rate expires at the same time your interest rate is adjusted upwards, you can see a serious rise in the cost of your mortgage.
To learn more about adjustable rates mortgages, buydowns, and other relevant aspects of buying a home, be sure to consult with a financial advisor or mortgage expert. You need all the advice you can get before you commit your money to anything major.
