Loan Programs → Rates, ARMs, and Buydowns

Choose a Mortgage Structure With Today and Tomorrow in View

The interest rate is only one part of a mortgage. The loan term, adjustment schedule, caps, points, credits, mortgage insurance, temporary subsidy, payment type, and closing costs all affect the borrower's immediate and long-term financial obligation.

Clear explanations of fixed-rate, ARM, temporary buydown, permanent buydown, and lender-credit structures.
Correct ARM labels showing both the initial fixed period and later adjustment frequency.
Payment-risk disclosures for adjustable-rate, interest-only, balloon, and temporary-payment options.

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Program Overview

A loan program describes the mortgage category, such as FHA, conventional, VA, USDA, jumbo, or Non-QM. A rate or payment feature describes how the interest rate or payment behaves. For example, a 2-1 buydown is a temporary payment feature that may be paired with an eligible fixed-rate loan; it is not a separate mortgage category.

An adjustable-rate mortgage name should state the initial fixed period and later adjustment frequency. A 5/6 ARM is fixed for five years and may adjust every six months afterward. A 5/1 ARM is fixed for five years and may adjust once each year afterward.

The borrower should compare the note rate, annual percentage rate, monthly payment, points, lender credits, mortgage insurance, closing costs, cash to close, adjustment caps, maximum payment, term, total interest, and expected time in the property.

Loan Options We Offer

30-Year Fixed-Rate Mortgage

The note rate remains fixed for 30 years. The longer repayment period can produce a lower principal-and-interest payment than a shorter fixed term, but total interest may be greater when the loan is held for the full term.

25-Year Fixed-Rate Mortgage

The note rate remains fixed for 25 years. Availability varies by lender. It may provide a payment and total-interest profile between common 20- and 30-year terms.

20-Year Fixed-Rate Mortgage

The note rate remains fixed for 20 years. The payment is generally higher than a comparable 30-year term, while principal is repaid faster and total interest may be lower.

15-Year Fixed-Rate Mortgage

The note rate remains fixed for 15 years. The required payment is generally higher than under a longer term, but the balance amortizes more quickly and total interest may be lower.

10-Year Fixed-Rate Mortgage

The note rate remains fixed for 10 years. The high required payment accelerates principal repayment and may fit a borrower with strong cash flow and a short payoff goal.

Adjustable-Rate Mortgage - ARM

An ARM has an initial rate that is fixed for a stated period. After that period, the rate may change based on the index, margin, adjustment schedule, and caps in the note. The payment may increase or decrease.

1-Year ARM

The introductory rate is generally fixed for one year and may adjust annually afterward. This structure may be available under certain FHA or private programs, subject to current lender requirements.

3/1 ARM

The rate is fixed for three years and may adjust once each year afterward. FHA may permit an eligible 3/1 structure; private or jumbo availability varies.

3/6 ARM

The rate is fixed for three years and may adjust every six months afterward. It may be offered under conventional, jumbo, or Non-QM programs depending on the lender.

5/1 ARM

The rate is fixed for five years and may adjust annually afterward. FHA and some private programs may offer this schedule.

5/6 ARM

The rate is fixed for five years and may adjust every six months afterward. This is common in conventional and private mortgage markets.

7/1 ARM

The rate is fixed for seven years and may adjust annually afterward. FHA and certain private lenders may offer this schedule.

7/6 ARM

The rate is fixed for seven years and may adjust every six months afterward. It may be available under conventional, jumbo, or Non-QM programs.

10/1 ARM

The rate is fixed for ten years and may adjust annually afterward. FHA and some private lenders may offer this schedule.

10/6 ARM

The rate is fixed for ten years and may adjust every six months afterward. It provides a longer initial fixed period before adjustment risk begins.

ARM Index

The index is the published benchmark used to calculate future ARM rates. The specific index is identified in the loan documents. The borrower does not control changes in the index.

ARM Margin

The margin is a percentage added to the index to determine the fully indexed rate, subject to the note and caps. The margin is generally established when the loan is originated.

Initial Adjustment Cap

The initial cap limits how much the rate can change at the first adjustment. It does not prevent the payment from increasing up to the permitted amount.

Periodic Adjustment Cap

The periodic cap limits how much the rate can change at each adjustment after the first, according to the note.

Lifetime Adjustment Cap

The lifetime cap limits how far the note rate can rise above the initial rate during the life of the loan. The borrower should understand the payment at the maximum rate.

1-0 Temporary Buydown

A permitted party funds a temporary account that offsets an amount calculated using a rate one percentage point below the note rate during the first year. The full note-rate payment applies after the temporary period.

2-1 Temporary Buydown

The temporary account offsets an amount calculated using a rate two percentage points below the note rate in year one and one percentage point below in year two. The full note-rate payment applies beginning in year three.

3-2-1 Temporary Buydown

Where eligible and offered, the temporary account offsets an amount calculated three points below the note rate in year one, two points below in year two, and one point below in year three. The full payment applies beginning in year four.

Temporary Buydown Funding

The subsidy may be funded by an eligible seller, builder, lender, borrower, or other permitted party according to the specific loan program and lender rules. Funds are held and applied to scheduled payments under the buydown agreement.

Permanent Rate Buydown With Discount Points

Discount points are paid at closing to obtain a lower note rate for the life of the mortgage. The borrower should compare the upfront cost with monthly savings and calculate how long it may take to recover the cost.

Lender Credit

A lender credit can reduce eligible closing costs in exchange for a higher interest rate or other pricing adjustment. The borrower should compare the immediate reduction in cash to close with the potential long-term interest cost.

No-Point or Par-Pricing Option

A no-point or par option generally means the borrower is not paying discount points specifically to reduce the rate. Other origination, lender, third-party, prepaid, or closing charges may still apply.

Interest-Only Payment Option

During the interest-only period, scheduled payments do not reduce principal. After the period ends, the payment generally increases because the outstanding balance must amortize over the remaining term. If paired with an ARM, rate changes can further affect the payment.

Balloon Mortgage

A balloon loan uses a repayment schedule that leaves a remaining balance due at an earlier maturity date. The borrower must pay, sell, or refinance the balance when due. Future refinancing is not guaranteed.

Assumable Mortgage

Certain government-backed or private mortgages may be assumed by a qualified buyer with lender or servicer approval. The buyer must meet requirements, and the seller should obtain a formal release of liability and understand any entitlement or secondary-liability impact.

Interest Rate Lock

A rate lock is a lender agreement to hold specified pricing for a stated period, subject to the lock terms and unchanged loan information. Expiration, extension, relock, float-down, property, credit, appraisal, and change-of-circumstance rules vary.

Floating the Interest Rate

Before locking, the borrower may allow pricing to move with the market. Rates can improve or worsen. A floating rate is not guaranteed until the lender confirms a valid lock.

Annual Percentage Rate - APR

APR is a standardized cost measure that includes the interest rate and certain finance charges. It is useful for comparison but does not equal the note rate or monthly payment and may be affected by the assumed loan term and future ARM behavior.

Principal, Interest, Taxes, Insurance, and Other Housing Costs

The complete housing payment may include principal, interest, property taxes, homeowners insurance, flood insurance, mortgage insurance, association charges, ground rent, leasehold payments, or other required amounts. A fixed note rate does not fix every housing expense.

Who This Program May Fit

A borrower comparing a fixed-rate mortgage with an adjustable-rate mortgage.
A buyer evaluating a seller- or builder-funded temporary buydown.
A borrower deciding whether to pay discount points or accept a lender credit.
A qualified borrower considering an interest-only or balloon structure and able to manage future payment or maturity risk.
A buyer evaluating an assumable mortgage with servicer approval.

What Borrowers Should Prepare

Expected time in the property and realistic plans for sale, refinance, payoff, or long-term ownership.
A monthly budget that can support the full note-rate payment, maximum ARM payment, post-interest-only payment, or balloon exit.
Estimated cash available for points, closing costs, reserves, and down payment.
Side-by-side Loan Estimates or lender worksheets showing rate, APR, points, credits, payment, closing costs, and cash to close.
The ARM note and program disclosure showing index, margin, caps, adjustment dates, and maximum rate.
Temporary buydown agreement, funding source, schedule, and treatment of any unused funds.

How the Mortgage Process Works

1
Initial consultation: We discuss the borrower's goals, property, occupancy, timing, available funds, income, assets, credit profile, and existing mortgage obligations.
2
Program comparison: We identify potentially eligible loan structures and compare the major differences in payment, cash required, mortgage insurance, rate structure, closing costs, and long-term strategy.
3
Application and documents: The borrower completes a mortgage application and provides documents required for the selected program and lender.
4
Processing and underwriting: The lender reviews credit, income, assets, liabilities, property, title, insurance, appraisal, and program compliance.
5
Closing: After final approval and satisfaction of all conditions, the borrower reviews the closing documents and completes the transaction.

Important Considerations

The lowest initial payment is not necessarily the lowest-cost or lowest-risk option.
An ARM rate and payment may rise after the fixed period.
A temporary buydown ends; the borrower must prepare for the full payment.
Discount points require an upfront cost and may not be recovered if the loan is paid off too soon.
A lender credit can reduce cash to close but may increase the rate and long-term cost.
Interest-only payments do not reduce principal during the interest-only period.
A balloon balance must be paid at maturity, and future refinancing is not guaranteed.
APR is a comparison measure, not the note rate or the complete lifetime cost in every scenario.

Frequently Asked Questions

Is a 2-1 buydown a separate loan program?

No. It is a temporary payment feature that may be paired with an eligible fixed-rate mortgage. The note rate stays the same, and subsidy funds offset part of the initial scheduled payments.

What is the difference between a 5/6 ARM and a 5/1 ARM?

Both are fixed for five years. A 5/6 ARM may adjust every six months afterward, while a 5/1 ARM may adjust once per year afterward.

Does a fixed-rate mortgage mean my total payment never changes?

No. The principal-and-interest portion is fixed, but property taxes, insurance, mortgage insurance, association charges, and other housing costs may change.

Are discount points always worth paying?

No. The answer depends on the point cost, rate reduction, monthly savings, expected time in the loan, available cash, and alternative uses of funds. Calculate the break-even period.

What happens when the interest-only period ends?

The borrower must begin paying principal as required by the note, usually over the remaining term. The payment may increase significantly, especially when the mortgage is also adjustable-rate.

Can I assume any mortgage?

No. Assumption depends on the existing loan terms, program, servicer, buyer qualification, lien status, equity gap, and formal approval. The seller should not rely on an assumption without a written release of liability when available.

Does viewing this page mean I am approved?

No. Website information is not an approval, preapproval, commitment to lend, or guarantee of terms. A lender must review a completed application and all required documentation.

Are all of these options available in every state?

No. Availability depends on Northgate Mortgage licensing, participating-lender guidelines, property location, loan purpose, occupancy, and current investor requirements.

What determines my rate and closing costs?

Pricing may depend on market conditions, loan program, credit profile, loan amount, property type, occupancy, loan-to-value ratio, documentation method, lock period, points, lender credits, and other transaction details.

What is the first step?

Speak with a Northgate Mortgage loan specialist to review the goal and complete an application when ready. Qualification depends on the complete borrower, property, transaction, and lender review.

Compare the Full Payment Structure, Not Only the Introductory Rate

Northgate Mortgage can help compare fixed, ARM, temporary buydown, permanent buydown, lender-credit, interest-only, and other available structures using the complete transaction.

Call (888) 433-1448 Email Us Get Pre-Approved

Northgate Mortgage LLC is a mortgage broker and is not making a commitment to lend. All loan programs are subject to borrower and property eligibility, credit review, income and asset verification, appraisal, title review, underwriting approval, investor requirements, occupancy requirements, geographic restrictions, and applicable state licensing. Program availability, guidelines, rates, annual percentage rates, fees, loan limits, and terms may change without notice. Not all applicants will qualify, and not all programs are available in every state. This information is for educational and advertising purposes only and is not legal, tax, investment, or financial-planning advice. Equal Housing Opportunity.

Adjustable-rate mortgage rates and payments may increase after the initial fixed period. Interest-only payments do not reduce principal during the interest-only period. Balloon loans require the remaining balance to be paid at maturity.

A temporary buydown reduces the required payment for a limited period through subsidy funds and does not reduce the note rate. Discount points reduce the note rate but increase upfront cost. Lender credits reduce eligible closing costs but may increase the rate.

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