Homebuyers

Hoping to Save Money During the First Years of Your Mortgage? An Adjustable-Rate Mortgage or Buydown Loan May Be Right for You

October 28, 2025

For many first-time and cash-strapped buyers, the toughest part of homeownership isn’t qualifying for a mortgage—it’s covering early homeownership costs.

Adjustable-rate mortgages (ARMs) and buydown loans can offer some financial relief by lowering mortgage payments for the first few years of homeownership. This can often make the difference between renting and finally getting the keys to your own home.

These loan options can be especially helpful for buyers who are stretching to purchase their first home, expect their income to grow, or don’t plan to stay in their properties over the long term.

However, the lower monthly mortgage payments don’t last forever.

With an ARM, buyers can typically lock in a lower mortgage interest rate for the first years of the loan. But then the rate adjusts after the introductory period.

Meanwhile, rates for buydown loans are generally lower for the first one, two, or three years of your mortgage before they reset.

These loans can save you big money at first. But it’s crucial to understand how and when monthly costs can rise.

Knowing how ARMs and buydown loans work and who they’re best suited for can help buyers decide which option fits their budget and long-term plans.

What is an adjustable-rate mortgage?

Adjustable-rate mortgages, known as ARMs, are becoming popular again as buyers look for ways to lower their monthly payments early on.

These loans start with a fixed interest rate that’s typically lower than current rates typically for the first five, seven, or 10 years of the loan. Then they adjust based on current rates, up to a cap.

“They’re a great option if you know you’ll sell, refinance, or move within a few years,” said Casey Gaddy, a senior agent at Keller Williams Empower in Philadelphia, Penn. “But it’s important to budget for the highest possible payment just in case.”

Mortgage Bankers Association data shows that ARMs are making a comeback. They made up 10.8% of total mortgage activity in the week ending Oct. 17, according to MBA.

That is the highest level in more than a decade as more buyers look for ways to take advantage of lower introductory rates.

But there’s a trade-off. Once the introductory period ends, your rate can reset, sometimes significantly. So, budgeting for higher payments is essential.

“Once that period is over, the mortgage payment can increase or decrease,” said Armine Arutunian, a loan officer at New American Funding in Downey, Calif. “Homebuyers should understand that the lower payment is temporary. But they have the option to refinance before or after the fixed term ends.”

For some buyers, that initial flexibility can be a smart financial move. For others, the uncertainty down the road can be risky.

What is a buydown loan?

A couple talking to a real estate agent in front of for sale home

Buydown loans are another way buyers can make their early mortgage payments more affordable.

With these loans, the interest rate is temporarily reduced, usually for the first few years. Typically, the buyer, seller, or even the builder pays for the lower rate. Then it adjusts to the market rate at the time you took out the mortgage for the remainder of the loan.

A buydown typically follows a 3-2-1, 2-1, or 1-0 structure. Let’s use a 3-2-1 buydown as an example. In this scenario, you took out a loan with a 6.25% interest rate. Your rate would be three percentage points lower in the first year, at 3.25%. It would be 4.25% in the second year and then rise to 5.25% in the third year. After that, you would have a 6.25% rate for the rest of the loan.

“A buydown is when the seller, builder, or even the lender helps reduce your interest rate for the first couple of years,” said Gaddy. “It doesn’t reduce the total cost of the loan per se, but it does make the early years of payments more palatable. We see a lot of sellers or builders offer these buydowns as concessions.”

While the lower payments won’t last forever, a buydown can make a big difference for buyers who need a little financial flexibility in the beginning.

Which homebuyers should consider an ARM?

Adjustable-rate mortgages aren’t for everyone. But for some buyers, they can be a smart way to keep early costs down and stretch their budget further.

ARMs tend to work best for homebuyers who expect their income to rise, plan to move within a few years, or intend to refinance before the fixed-rate period ends.

By locking in a lower initial interest rate, these borrowers can ease into homeownership while keeping monthly payments manageable at the start.

“A homebuyer who will benefit from an ARM loan is the buyer who is willing to take a risk when the ARM period is over, knowing their payment may increase,” said Arutunian.

For the right buyer, an ARM can make the early years more affordable. But it’s important to plan for possible payment increases down the road.

Which homebuyers should consider a buydown loan?

A woman sitting at a computer with a dog in her lap

Buydown loans can be a smart option for buyers who need a little financial relief at the start of homeownership.

“First-time homeowners, families balancing new expenses, or buyers expecting their income to grow in the near future can all benefit,” said Gaddy. “The lower payments don’t last forever, but they can make a huge difference when you’re getting started.”

For buyers who need a little extra flexibility at the start, a buydown can make homeownership more attainable. Homebuyers do need to keep in mind that the lower payments are temporary.