You could, conceivably, roll the “buy-down” point(s) into the mortgage amount. For example, if you’re buying a house with a 100,000 mortgage, and want to pay a point to bring the rate down (I think a 1% point would lower it either 1/8 or 1/4 of a point), then you could write the mortgage for 101,000 instead. That would increase the payment slightly.
For example: 100,000 for 30 years at 6% gives a payment of 599.55 if my spreadsheet is correct. 101,000 for 30 years at 5.875% (1/8 point buydown) = 597.45. NOT a big savings. 100,000 for 30 years at 5.875% = 591.54. Obviously those differences would be magnified somewhat for a larger mortgage.
When looking at an ARM, you need to look at two things when estimating adjustment: what is the max it can adjust at one time, and what’s the max it can adjust over the lifetime. Typically you’ll see something like 2% per adjustment, up to a max of 5% over the life of the loan. There certainly are ARMS that can adjust to the full maximum in any single adjustment; I don’t know how common those are.
So in 3 years, that 6% loan (assuming a 3/1 ARM and a 2/5 cap) might adjust up to 8% - even if interest rates have gone so insane that a brand-new loan would be 12%. Then the year after, it would go to 10, then the year after, to 11. If interest rates stay low, you might not see much of a change.
Going with the 100,000 loan at 6% and a 3/1 ARM (numbers not guaranteed to be correct, they’re using a spreadsheet I created for fooling around with refi options):
Your payment for 3 years would be 599.97.
Then it adjusts. If it goes all the way to 8%, the payment would be 724.74 for the next 12 months.
Then it adjusts again. If it goes all the way to 10%, the payment would be 856.25 for the next 12 months.
Then it adjusts again. If it goes all the way to 11%, the payment would be 923.54. It would never get any higher than that and if rates drop, it might even decrease.
So - if you go with an ARM to get lower up-front payments, you need to think seriously about what could happen when the initial 1, 3, 5, or whatever commitment period expires. Calculate the max the payment could adjust after that and see what happens with it.
If someone tries to get you to go for one of those loans where you pay less than the interest that’s accruing… run like hell. Needing to go that route to afford the payment = “you can’t afford the house”.
I will caution you - if you’ve been approved for financing at the payment stated, you may not be able to walk away from the purchase without forfeiting whatever earnest money you’ve put up - typically a few percent of the purchase price.
Oh - and as others have said, your escrow payments (tax, insurance) will be added on top of the principal+interest payment. Ours is over 600 dollars a month (property taxes are over 6,000 a year and insurance is about a thousand; we’re in a high-rent area). They’re about 25% on top of the principal and interest.
One interesting thing about an adjustable mortgage: if you’ve managed to pay a bit extra before it adjusts, the new payment is calculated taking that into consideration. In the above example, say you throw 50 dollars a month extra into it during the 3 years, the payment after 3 years would be something like 715.54 as opposed to 724-something. Not a huge difference but worth noting.