Why Are People Going Crazy for 1% Payment Option Mortgage Loans?
Exotic 1% mortgages are not just a financing fad. In our changing market, from unprecedented low rates to a steady rising of interest rates, these varieties of loan programs have become much more popular, notes Bill Callanan, a partner with Mortgage Management systems, a San Francisco mortgage broker. Although the traditional long-term fixed-rate loans are still available and popular, California residents are taking a close look at negative amortization loans (neg am loans), interest only loans, deferred interest loans and payment option ARM loans. Exotic mortgages have given many Californians increased purchase power and lower payments.
An option ARM allows consumers to choose four different types of monthly payments. Payments can be interest only, fully amortizing over 30 years, fully amortizing over 15 years, or a minimum 1% payment for the first twelve months. The payments are calculated based on CODI, MTA or COFI. The minimum payments, however, gradually increase over the first five years. Although a pick a payment mortgage allows for a lower payment, it doesnt mean that a buyer that cannot afford the payments on a standard million dollar loan should utilize the product to get one. The 1% percent intro rates wont last forever.
The other difficulty of a payment option loan is that on the sixth year the loan is recast and all the payments following are fully amortized. The fully indexed payment may be tough for the consumer to afford. Not to mention if you have not been paying the principal and interest, instead making minimum payments, you will not have built any equity. In fact you could have been losing equity in your home.
Many Californians, however, are finding that a payment option is the right purchase loan for them if they dont plan to cash out on equity or if they plan to sell or refinance in a couple of years. It is a good product for someone who anticipates their income increasing dramatically, such as a doctor just out of medical school or anticipates the equity in the home to increase dramatically. The payment option plan can free up cash until the buyers cash flow increases or until the home is sold. With most home owners selling within an average of seven years, the old standard fixed-rate 30 year mortgage may not be the best way to make your money work for you.
Rebecca is a respected writer and article contributor to the Desert Magazine and Los Angeles Times. For the latest interest rates for fixed rate 2nd mortgages and interest only lines of credit, please visit the online resources at Second Mortgage & Equity Loan Refinancing. Please visit these additional resource websites: To get a free loan quote for a Payment Option Neg Am Mortgage Loans for people with all types of credit, please check out the special loan offers for lower payments. If you need more loan advice about credit lines, take a look at the flexible programs offered for second mortgage loans with bad credit.
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