OPTION ARM
**NO LONGER AVAILABLE>> INFO ONLY!
We have the
perfect loan for you. The start rate is 1%. You have 3 payments
choices available to you. The minimum
(1%), an Interest Only and a Fully
Amortized payment. The loan is called a MTA (Monthly Treasury
Average).
While it's
true this is an adjustable rate mortgage, the index is a very stable and secure
index. It doesn't overreact to huge market changes making it a very stable
loan.
Here is how
it works. Based on the following scenario, let’s say you need a new
1st mortgage of about $225,000 (including closing costs: title, insurance,
appraisal, lender, escrow, etc.) Since
this is a refinance, you can include your cost to close in the loan.
If you make
the FULLY AMORTIZED payment,
your mortgage payment will include principal & interest (P&I) and your
loan balance will decrease over time. The P&I payment is based on the
MTA Index (as of January 2006 it was 3.619%), plus the Margin.
The INDEX is the rate used on which banks exchange money. The MARGIN
is the banks profit, which is approximately 3.45%. The "Fully Indexed
Rate" in this scenario is 7.07%, far below what a fixed rate would be and
for that matter any 1,3,5,7 or 10 year Adjustable.
At this rate, your mortgage payment (P&I) would be $1,507.52.
If you make
an INTEREST ONLY payment, your
mortgage payment will only be the interest due on the loan and the loan balance
will not decrease. To obtain the Interest Only payment, multiply the loan
amount by the fully indexed rate.
Here is how to figure this out. $225,000
x 7.07% = $15,907. Divide this
number by 12 (months) and you will find that your Interest Only payment would be
$1,325.63. This is a savings of
$181.38 per month or $10,882 over a 5 year period.
If you make
the MINIMUM payment.
Your mortgage payment (P&I) will be based on a rate of 1%.
Your payment would be $723.69. That’s
a $783.83 savings from the Fully Amortized payment and you could tack on another
few hundred dollars in savings if you were to take a fixed rate program.
Over a 5 year period, you will have kept over $46,980 in YOUR pocket
instead of paying it to the bank. However,
since this rate is much lower than the market rate, there will be “deferred
interest”. Deferred Interest is
the difference between the Interest Only payment and the Minimum Payment.
In this scenario, that would be $542.
This $542 is unpaid interest and is added to the loan balance.
So, instead of your mortgage balance going down (or remaining steady as
with an Interest Only), the mortgage balance would increase by $542.
Not to worry. There is a
built in safety feature that will stop that increase and reverse the process.
Each year, the PAYMENT (not the rate), will increase by 7.5%.
So, next year your minimum payment would be $777.97 instead of $723.69.
Let’s
project this scenario out for 5 years. Each
year your home will appreciate about 4% (or more).
In 5 years, a home worth $225,000 will be worth about $275,000.
Your mortgage balance at that time would be about $257,000 (if you take
the $542 deferred interest x 60 months). So,
you will still be ahead in equity by $18,000.
If you make the minimum payment ($723), you will save $783 (approx) every
month or $46,980. This means you
will have an overall gain by $65,000!
All that money in your pocket while making payments that are
hundreds of dollars lower than any market fixed rate you will get.
Another
safety feature is that this loan will automatically re-cast every 5 years or if
the deferred interest reaches 115% of the original loan balance.
In case of a re-cast, the new rate would be based on the fully
indexed rate over the “remaining” term (25 years).
If the
Loan-To-Value (LTV) is over 80% (or if you put less than 20% down on a
purchase), the start rate will be 1% higher.
This loan is
available as a Full Doc (verify income and assets) or Reduced Doc (stated
income).
As you
have read, this program is a bit complicated, but it is a very safe loan to
choose and the rewards are priceless. You must also
remember that as the mortgage balance increases, so does your appreciation.
But, in most cases, the appreciation far exceeds any increase in mortgage
balance.
This program
is the choice of top financial executives and provides you with the flexibility
of choosing your payment and ultimately giving control of your money back to
you, where it belongs.
Should you have any questions or need further clarification, please feel free to call me.
Dan Palumbo,
Licensed Mortgage Banker.
800-817-8743 ext. #201.
We lend in
Dan is the published author of the Mortgage Loan Officer Training Manual. You may order one by visiting www.mortgagetrainingmanual.com
Licensed Mortgage Banker - New Jersey Department of Banking and Insurance; Licensed by the Pennsylvania Department of Banking; Virginia Licensed Mortgage Lender