ARM in the sense that it adjusts over 1, 2 or 3 years. The buydown money is collected in advance from seller, lender or builder and escrowed until used up. Then full interest rate takes over.
You are right, it is not a margin tied to an index rate, currently SOFR (before that LIBOR) like a typical ARM.
Also different from a discount rate, or discount points, paid to have a reduced lifetime rate.
Only advantage to a temp buydown that I can see is qualifying for a loan that is intended to be temporary. If you get stuck on the fixed rate with no way out, well, we know what happened in 2008. An investor holding this type of loan pool may be exposed to holding a bunch of foreclosure paper. The last round, lenders were caught holding loan pools not yet sold to a GSE and went out of business. Maybe this is the risk UWM is taking? |
