Oklahoma
Mortgage Loan Service (MLS)
Buydown Mortgage
Loan vs.
Graduated Payment Mortgage
While these two mortgage types start
the homebuyer off at one rate and increase the rate
over time, one of these types of mortgages may be
right for you:
Buydown
This type of mortgage loan is where the loan
rate is reduced by paying more up-front at closing and
is increased by one percent each year for the period
set for the loan product. For example: For a 2-1 buydown
at an 8% rate, Year 1 the rate is 6%, Year 2 the rate
is 7%. For Year 3 through the life of the loan, the
rate is 8%.
Qualification rules for the mortgage loan programs
remain the same. Depending on the lender, the buyer
may qualify using the reduced rate. (Example: For a
3-2-1 Buydown at a rate of 8%, the buyer could qualify
using the 5% rate.)
The difference between the actual payment schedule
and the rate schedule is usually paid "up-front"
at closing. This can be paid by the seller, the buyer,
the homebuilder, or in some cases, the lender. If the
cost is borne by the lender, it is usually offset with
increased rates or in points. Generally the funds used
to buy down the loan are held in a separate account
and are applied with the borrower's payment to equal
the true interest rate.
Graduated Payment Mortgage (GPM)
This type of mortgage loan is where the mortgage
payments increase gradually for a period established
in the loan product, typically five years. This is a
negatively amortizing loan, which means that the difference
between the interest paid and the interest due is deferred
and added to the loan balances. Because of this, your
loan amount will increase once you start paying off
the loan; it will amortize normally at the end of the
loan period. These loan products are more popular when
the interest rates are higher, providing a financial
incentive for potential buyers.
Since many lenders will qualify a buyer at a lower
rate, a buyer can secure a larger mortgage. These loan
types are good for those buyers who expect their incomes
to increase to cover the increase in loan amount.
Participants in the Homebuying Process Lender
- Bank/Credit Union/Mortgage Company which provides the funds
(or a Mortgage Broker
obtains the loan source for the
purchase of real estate properties. Buyer - A person purchasing
a home. The buyer may search for a home with or without
the help of a Real Estate Agent (a Buyer's Agent). Seller
- A person selling a home. The seller usually works closely
with a Real Estate Agent to sell his/her home. Real
Estate Agent - There are two types of Real Estate Agents:
- Selling Agent - A person who earns a sales commission
on the sale of a home from the seller.
- Buyer's Agent - A person who earns a commission
on the purchase of a home.
Either Real Estate Agent may be a licensed Realtor
or a lawyer specializing in Real Estate. Home
Inspector - A Real Estate professional who inspects
a home prior to settlement day. The final result of
a home inspection is a report detailing the condition
of the property.
Home Appraiser - A Real Estate professional who sets
a dollar value for a home's worth, using standard appraisal
criteria. The appraisal is one of the important documents
required at closing.
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