With rates above 7%, should I choose an ARM, a rate buydown, or a 30-year fixed?

How do the options compare?

Option	How it works	Best for	What to watch
30-year fixed	Same rate and principal-and-interest payment for 30 years	Staying a long time, wanting certainty	Highest starting rate of the three
ARM (5/6, 7/6, 10/6)	Lower fixed rate for 5, 7, or 10 years, then it adjusts every six months	Planning to move or refinance before it adjusts	Your payment can go up; know your caps
Temporary buydown (2-1 or 1-0)	Rate is 2% lower in year one and 1% lower in year two, then goes to the full rate	Getting through the first year or two at a lower payment	Someone pays for it up front, usually the seller or builder
Permanent buydown (points)	Pay points at closing for a lower rate for the life of the loan	Keeping the loan long enough to earn the cost back	Each point costs 1% of the loan amount

How does an ARM work?

An ARM has a fixed rate for the first few years, then it adjusts based on an index plus a margin. Every ARM has caps: a limit on the first adjustment, on each adjustment after that, and on the total increase over the life of the loan. Ask for the caps in writing, and ask me to show you the worst-case payment. If you can live with that number, an ARM is on the table.

Who pays for a temporary buydown?

Usually the seller or builder, as a concession. They pay roughly the payment difference for those first years up front, and it goes into an account that makes up the gap each month. When rates are high, asking for a buydown can be worth more to you than a small price cut. Run the numbers both ways.

When do points make sense?

When you'll keep the loan long enough to break even. Divide the cost of the points by how much they lower your monthly payment. That's how many months it takes to earn your money back. If you might sell or refinance before then, skip the points.

Example scenario (illustrative)

A buyer in Southern California is choosing between a price reduction and a seller-paid 2-1 buydown worth about the same amount. The price cut saves them a little every month for 30 years. The buydown saves them a lot more in years one and two, while their income grows. They take the buydown, and they keep the 30-year fixed rate as the safety net.

Our take

There's no one right answer. It comes down to your timeline and your comfort with change. I'll show you the full cost of each option, including the points, the worst-case ARM payment, and what the seller credit is really worth, so you can choose with your eyes open.