Which financing instrument is designed to temporarily lower the initial mortgage rate by paying points upfront?

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Multiple Choice

Which financing instrument is designed to temporarily lower the initial mortgage rate by paying points upfront?

Explanation:
Rate buydowns involve paying points upfront to temporarily lower the mortgage rate. Here, you pay discount points at closing, with the price often expressed as a percentage of the loan amount (1 point ≈ 1% of the loan). The lender then reduces the interest rate for a defined initial period, which lowers the monthly payment during those early years. After that period ends, the rate typically reverts to the note rate (in a temporary buydown), or it stays reduced for the full term in a permanent buydown. This is the best fit for the description because the defining feature is paying points at closing to achieve a lower rate right away for a limited time. The other options describe different mortgage structures: an adjustable-rate mortgage has a rate that changes over time but not specifically because of upfront points; a graduate payment mortgage starts with lower payments that rise later; a straight loan/term loan has fixed payments and rate throughout.

Rate buydowns involve paying points upfront to temporarily lower the mortgage rate. Here, you pay discount points at closing, with the price often expressed as a percentage of the loan amount (1 point ≈ 1% of the loan). The lender then reduces the interest rate for a defined initial period, which lowers the monthly payment during those early years. After that period ends, the rate typically reverts to the note rate (in a temporary buydown), or it stays reduced for the full term in a permanent buydown.

This is the best fit for the description because the defining feature is paying points at closing to achieve a lower rate right away for a limited time. The other options describe different mortgage structures: an adjustable-rate mortgage has a rate that changes over time but not specifically because of upfront points; a graduate payment mortgage starts with lower payments that rise later; a straight loan/term loan has fixed payments and rate throughout.

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