Mortgage Loan Basics: Interest Only Loans, Pay Option ARM
To understand loans and mortgages we need to understand loan limits first
. If your loan amount exceeds the amount below, you will qualify for a Jumbo Loan, which carries higher interest rate. One-Family (single family homes) $417,000
Two-Family(duplex) $533,850
Three-Family (triplex) $645,300
Four-Family(fourplex) $801,950 FIXED Loans: 30 Year Fixed Mortgage Rates
This loan program is fixed for 30 years. Your interest rate will not change for 30 years. This is ideal for people who plan to stay at their present property for a long period of time. 20 Year Fixed Mortgage Rates
Fixed for 20 years. Your payment will be higher than 30 year fixed loan becuase your loan term is only for 20 years. Interest rate will not change for 20 years. 15 Year Fixed Mortgage Rates
15 year fixed loan has a loan term of 15 years and will not change during this period. Your monthly payment on this loan program will be much higher than 20 years fixed or 30 years fixed. Use this loan program if you plan to sell your home in 5-8 years. Interest rate will not change for 15 years. ARM (Adjustable Rate Mortgage) ARM Loans are fixed for a certain period of time, where after that period ARM loan becomes an adjustable loan. How do they work? Each ARM Loan Program has these options: 1) Index: Most comon index-LIBOR 2) Margin: Is given to you by your lender, and it is the difference between the index rate and the interest charged to the borrower For example 5/1 ARM. This loan is fixed for 5 years after which in 6th year it becomes an adjustable loan. Your loan officer will tell you what your index is and what your margin is. Usually 5/1 arm is tied to 1-year treasury index and margin is around 2.00%-3.00% Your index + margin = Fully Index rate . Your new note rate (interest rate) after 5th year. What about the 6th year? What would your payment be? Let's say that your loan officer told you that your margin is 2.5% with 1 year treasury index. You will have to look up 1 year treasury index for a specific month. 1 year treasury as of Oct.2005 is 4.18, and you know that your margin is 2.5%. Therefore you new interest rate is 1 year treasury 4.18% (index) + 2.5% (margin) = 6.68% for the begining of 6th year. Index rate are move on monthly basis, therefore your payment may flunctuate each month. In most cases banks wills end you a statement advising you that your rate will change. 3) To protect consumers from high index rates, lenders implemented a CAPS. An example of this is a 2/6 cap, which allows the interest rate on your ARM loan to go up or down by no more than two percent every adjustment period, and has a total limit of six percent for cumulative changes. Therefore a 2/6 cap on a 5% ARM will allow a maximum rate (6 + 5%) of no more than 11%. In some cases you will see 2/2/6, which means 2% adjustment with 2 year prepayment penalty and total of six percent of cumulative changes. 4) With an arm you can have either a fixed rate or you can choose an Interest Only structure loan. 1/1 ARM Mortgage Rates
1 year ARM (Adjustable Rate Mortgage) is fixed for 1 year and in 2nd year it becomes an adjustable. 3/1 ARM Mortgage Rates
3 year ARM (Adjustable Rate Mortgage) is fixed for 3 years and in 4th year it becomes an adjustable. 5/1 ARM Mortgage Rates
5 year ARM (Adjustable Rate Mortgage) is fixed for 5 years and in 6th year it becomes an adjustable. 7/1 ARM Mortgage Rates
7 year ARM (Adjustable Rate Mortgage) is fixed for 7 years and in 8th year it becomes an adjustable. 10/1 ARM Mortgage Rates
10 year ARM (Adjustable Rate Mortgage) is fixed for 10 years and in 11th year it becomes an adjustable. Interest Only Loans For example, if a 30-year fixed-rate loan of $100,000 at 8.5% is interest only, the payment is .085/12 times $100,000, or $708.34. This is an example of interest only payment. Each loan payment consists of Interest and Principal. Here you will be paying an interest each month and your principal will be adding to your balance, thus increasing it. You may also pay both principal and interest. If a lender offers you an Interest only Loan these loans are tied to an index just like ARM loans. MTA Index: The MTA index generally fluctuates slightly more than the COFI, although its movements track each other very closely. . 1 Month MTA ARM Mortgage Rates
. 3 Month MTA ARM Mortgage Rates
. 6 Month MTA ARM Mortgage Rates
. 12 Month MTA ARM Mortgage Rates COFI Index: This index rise (and fall) more slowly than rates in general, which is good for you if rates are rising but not good for you if rates are falling. . 1 Month COFI ARM Mortgage Rates
. 3 Month COFI ARM Mortgage Rates LIBOR Index: LIBOR is an international index, which follows the world economic condition. It allows international investors to match their cost of lending to their cost of funds. The LIBOR compares most closely to the CMT index and is more open to quick and wide fluctuations than the COFI. . 6 Month LIBOR ARM Mortgage Rates
. 12 Month LIBOR ARM Mortgage Rates Pay Option ARM Loan Pay Option ARM in a new loan program allowing customers to choose from up to 4 different payments. This loan program is part of an ARM, but with added flexibility of making one of the 4 payments. Your intial start rate varies from 1.000% to anywhere around 4.000%. The intial start rate is held only for one month, after that interest rate changes monthly. 4 major choises are: 1) Minimum payment: Fot the first 12 months interest rate is calculated using the start rate after that interest rate is calculated annually. Example: Loan Amount: $200,000.00
Initial Rate: 1.25%
Index: 3.326 (MTA as of October 2005)
Margin: 2.75%
Payment Cap: 7.5%
Fully Indexed Rate: 6.076% (ndex + margin ) Minimum Payment Changes:
Year 1 $666.50 Minimum Payment
Year 2 $716.49 = $666.50 + 7.50%
Year 3 $770.22 = $716.49 + 7.50%
Year 4 $827.99 = $770.22 + 7.50%
Year 5 $890.09 = $827.99 + 7.50% The Option ARM's 7.5% payment cap limits how much the payment can increase or decrease each year, except for every fifth year (beginning in the 10th year on certain programs), when the cap does not apply. In the event your balance exceeds your original loan amount by 125% (110% in N.Y.), the payment amount may change more frequently without regard to the payment cap. Becasue you are paying "minimum payment" this option will defer a payment of an interest which will be added to your balance. Minimum Payment Adjustment Period: The minimum payment is usually set to 12 months, unless negative amortization limit is reached. Minimum Payment Cap: This is a limit on how much the minimum payment can change. Your payment cap will be 7.5% for the first five years. On your next payment due, your minimum payment cannot increse or decrease more than 7.5%. If it does than a loan is recast.
Mortgage Loan Basics: Interest Only Loans, Pay Option ARM
By: WebMedia20
List Of Broker Price Opinion - Why Banks Need Broker Price Opinions What You Should Distinguish About UK Payday Loans Instant Payday Loans-Get rid of small cash crunches Do Prohormones Make Your Dick Get Bigger Dating Advice - 7 Dates That Won'T Break The Bank IndyMac - One West Bank Loan Modification Help (Modification for Any Bank for That Matter!) Unsecured payday loans-Get fast money before payday Same day loans online-Get cash over the web Unsecured Car Loans - A Special Financial Tool for Your Luxury Same Day Payday Loans – Qualify Criteria and Get Instant Cash Unsecured Loans for Unemployed – Avail Cash in Absence of Collateral Home Equity Loans How can you help? Unsecured Loans Vs Secured Loans: Which is better? Home Equity Loans – What not