Which type of mortgage allows the borrower to make lower payments in the initial years?

The type of mortgage that allows the borrower to make lower payments in the initial years is known as a Temporary Buy-Down. This structure allows the borrower to reduce their interest rate for a specific period at the beginning of the loan term, which results in lower initial monthly payments. Typically, the borrower makes reduced payments for a predetermined number of years, after which the interest rate returns to the original note rate, leading to higher payments in subsequent years.

The Temporary Buy-Down can provide financial relief to borrowers during the early years of the mortgage, making it easier for them to manage their cash flow as they settle into homeownership or as they anticipate increases in their income over time. This feature can be particularly appealing in situations where borrowers expect their earnings to grow, allowing them to adjust to the higher payments once the buy-down period ends.

The other options involve different structures that either do not specifically focus on reducing payments over initial years or have different payment dynamics that do not effectively create the same benefit. Understanding this distinction is crucial for mortgage loan officers in helping clients choose the right loan products for their financial situations.