What Is a Temporary Buydown Mortgage?
So, what is a temporary buydown mortgage? A temporary buydown mortgage is a home loan that starts with relatively small monthly payments. Then, over the life of the loan, the payments will increase annually until the full monthly payment is reached. Instead of all of the monthly payments being the same over the life of the loan, the interest rate is adjusted to make it easier for some people to afford a home loan with small monthly payments in the beginning.
Even though the payments increase over the life of the loan, it is still considered a fixed-rate mortgage because the interest rate attached to the mortgage does not change after the first 1-3 years. If you believe that your income will increase significantly during the next few years, then a graduated payment loan might be right for you.
Is a Temporary Buydown Mortgage the Same as an ARM?
No, a temporary buydown mortgage is not the same as an adjustable-rate mortgage. An adjustable-rate mortgage also has monthly payments that vary, but they vary depending on market conditions and relevant indexes. Your monthly payments can go up or down depending on how the general economy changes. As a result, your amortization schedule is not set when you take out an ARM.
On the other hand, your amortization schedule is set when you take out a temporary buydown mortgage. Even though your monthly payments will go up with a temporary buydown loan, you know exactly how they will increase every year as soon as you take out the loan.
You can use our temporary buydown home loan calculator to calculate your mortgage payments.
Benefits of a Temporary Buydown Loan
If you decide to take out a temporary buydown loan, there are several significant benefits you will enjoy. They include:
- It might make it easier for you to handle the first couple of years of your mortgage. Because you have smaller monthly payments at the beginning of the amortization schedule, it may be easier for you to pay your home loan even with a low income.
- A Temp. Buydown Mortgage loan can be well-suited for those anticipating career growth. If you believe your income will generally increase in the future, your monthly payments will increase similarly, making it easier for you to afford higher monthly payments down the road.
- You will be fully aware of how much your payment will increase. A temporary buydown loan makes it easier for you to budget your monthly expenses because it is more flexible.
- Choose between a 3-1, 2-1, or 1-0, temporary rate buydown. For example, you take out a 30 year fixed loan at 7%, but for year one the rate is 5%, year two 6%, and then year 3-30 the rate is fixed at 7%. Temporary buydown loans are not negative amortization loans and therefore you will not be added to the balance of your loan.
- An initial temporary buydown payment can oftentimes be lower than an interest-only payment. If you are looking for the lowest payment available when purchasing a home it is best to compare a 1/0 buydown, 2/1 buydown, 3/1 buydown, permanent buydown, and interest-only loan to see what is best for you.
- Available on most loan types. Conventional, VA, Bank Statement, and DSCR loans.
It is important for you to think about the benefits of a temporary rate buydown loan before you decide what type of mortgage you want. These benefits could make it easier for you to afford your dream house.
Drawbacks of a Temporary Buydown Loan
On the other hand, there are a few drawbacks to a temporary Buydown loan as well. They include:
- Monthly payment increases can cause financial strain. If your monthly mortgage payment continues to rise but your income remains stagnant, this can place an undue strain on your finances.
- The seller may not be willing to credit you for your temporary buydown costs. Your local market might be too competitive and sellers are unwilling to offer credits or concessions.
You should think about the benefits and drawbacks of each loan option carefully before you decide which one is right for your needs. If you are looking for an alternative to a traditional mortgage, we have plenty of Non-QM mortgages available, and it would be our pleasure to help you find the right one to meet your needs.
How to Get a Temporary Buydown Mortgage
If you would like to get a Temporary Buydown mortgage, there are several steps you need to follow. They include:
- You should start by reaching out to our team to inquire about the application process. We will provide you with an application, and we will request some information.
- We will review the documents you give us, and we will ask for clarification if we need it. Based on the information you provide, we will let you know the type of home loan you have been approved for and the loan amount.
- We will review the terms of your temporary buydown mortgage with you. We want you to understand exactly how the payment schedule works before you sign the document.
- If you decide that our terms are right for you, we will invite you to sign the final document in the presence of a notary.
It would be our pleasure to help you get this process started.
See If You Qualify for a Temporary Buydown Mortgage
What is a Temporary Buydown mortgage? This is a mortgage that could make it easier for you to make your payments on a home loan because it has smaller monthly payments in the beginning. At Griffin Funding, it would be our pleasure to review your loan options with you, whether you are looking for an interest-only loan, a temporary buydown loan, or another financing option. If you would like to learn more about how we can help you finance your next home purchase, reach out to us today to get a quote.