Interest Only Loans

 There are many types of loans that are available to our clients. The
most common ones are 30 year, 20 year and 15 year fixed loans. You
have adjustable rate mortgages that are fixed for 3 years, 5 years, 7
years and 10 years. That means the rates are fixed for those certain
years and then become an adjustable mortgage after the initial fixed
rate period. There is also a Option arm program (1% start rate), often
called the "pick-a-pay" or "freedom loan". This loan has potential for
negative amortization, where the principal balance can go up, instead
of down (in a rising interest rate environment).

The most popular interest only loan right now is the 30 year fixed
with a Interest only option for the 1st ten years & the rate will
never change over the 30 year period. It's a 30 year fixed loan with a
interest only payment option for the first 10 years. You do have the
right to make additional payments towards principal (pre-payments with
no penalty), if desired, at any time. If you make the interest only
payment, that will only pay towards interest and nothing towards
principal, so, the loan balance doesn't go up or down (stays the
same). You can also make additional payments towards principal, if
desired, but not required. Any additional payments would go towards
principal and the balance of the loan would then go down. At the end
of 10 years, if you make the interest only payment for the 1st ten
years your interest rate would not change for the next 20 years, but
your payment would change. The reason is because the remaining balance
at the end of 10 years is then amortized to a 20 year fixed loan based
on the loan balance at the end of 20 years, so that the loan can be
paid off by the 30th year.

There are a few other type of loans that you can get into that offer
the interest only option, they are fixed for either 3, 5, 7, or 10
years and have interest only options for those fixed years only. After
the initial fixed period is up, it would become an adjustable rate
mortgage and you would have to make the principal and interest payment
& then amortize the loan balance over 27, 25, 23, or 20 years
(depending on the length of the fixed rate initial term). These loans
are good if you know for absolutely sure you are going to move out of
your home within the first 3, 5, 7 or 10 years. However, if you are
doing a purchase loan, you should read the article "Own your home for
7 years" on our site under Articles/Newsletters then click on top
articles. Basically, historically speaking, if you own your home for 7
years (here in California) it will be worth more than what you paid
for it, 7 years from now, despite where real estate prices are at or
where people think they are headed. So, if you are purchasing a home
we recommend a minimum of a 7 yr initial fixed rate period.

Option ARMS (ARMS - Adjustable Rate Mortgages) are loans where you
have 4 different payment options. Under Articles/Newsletters you can
click on top Articles & then click on where it says "1% this, 1% that,
what is all this I am hearing about these 1% loans". It will give you
some great insight to these types of loans. In short, the first
payment option is the 1% start rate, amortized over 30 years, which
basically gives you the lowest payment option on any loan in the
United States. Payment option 2 is the interest only payment, based on
the Index (MTA - moving treasury average, the COSI - Cost of Savings
Index) + a margin between 2-3%, usually around 2.75%. In order to
determine the payment you add up the Index + the Margin in order to
get the Interest Rate (then you take the loan balance multiply it by
the rate & divide by 12 to determine the interest only payment), the
third payment is the fully amortized payment or the principal and
interest payment amortized over 30 years. The fourth payment is the
fully amortized payment or the principal and interest payment
amortized over 15 years.

With this option arm loan the rate is adjustable every month so it can
go up and down compared to the 30 year fixed and the 3, 5, 7 or 10 yr
fixed ARM's.

If you would like to learn more, email me direct at:
daren@sfmdirect.com

 

They call this the "freedom" loan because you will end up losing
your house, and be free of your home from then on.  Whenever you
see someone talking about the freedom loans, patriot loans, or
anything else that is option based or negative amortization,
you need to run the other direction.  Don't even think of listening
to the pitch from these swindlers since they are trained to
extract many thousands out of our bank account before you catch
on, and then you get in payment trouble and it is too late to
do anything to fix the problem.

-john-

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John A. Weeks III           952-432-2708            john@johnweeks.com
Newave Communications                         http://www.johnweeks.com
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