Santa Ana Home Loan

Pros and Cons of Pay Option ARM loans - A Pay Option ARM loan is a very flexible mortgage loan. There are many benefits and drawbacks of these types of mortgage home loans. The main benefit of a pay option arm loan is that this type of mortgage provides you with the most flexiblity for making your monthly payments. You are given, usually, four payment choices each month to choose from. You can lower your monthly expenses significantly if you choose to make the lowest payment option. These types of loans are not right for everyone and you should consult a mortgage professional to see if it may be right for you.

A potential risk associated with Pay Option ARM is possible negative amortization. Negative amortization occurs when over time the loan balance is more than the original loan amount. When a borrower makes minimum payments, which is less than the interest accrued for the month, the interest left unpaid is added to the loan principal. Instead of pay down the principal, the homeowner can end up owing more than what he borrowed. In a real estate market where home values are unchange or even depreciating, negative amortization can be disastrous.

Option ARM's may cause "Negative Amortization" only if the appreciation is less than 3% per annum. If one is able to take the difference between the minimum payment and the full interest payment and put this amount into a tax free investment vehicle then one would be able to payoff one's mortgage that much faster.

Pay Option ARM program. - The pay option ARM program can be an excellent mortgage program for someone who needs to pay down credit card debt, but cannot qualify for a Cash-Out Refinance.

Option arms are portfolio products often held by the lender. They are not purchased by Fannie Mae or Freddie Mac.

Option Arms (1% Payment loan)

Option arms or the pick your payment loan can adapt to fit your lifestyle. They offer flexible payment options and qualification standards. Investors like them for there low payments and cash flow potential.

Traditional home loan payments are the same each month for the term of the loan. With an Option ARM, you can choose from one of four payment choices each month -- which gives you the flexibility to change your mortgage payment as your needs change. You are only required to make the minimum payment on the loan each month.
Payment Options
1. Minimum Payment
2. Interest Only Payment
3. Fully Amortized 30 year payment
4. 15 Year Payment

Main Benefits of an Option Arm

To minimize your house payment to pay off other debt.
To control how much tax-deductible interest you pay monthly.
To maximize your buying power.
If your income tends to fluctuate.

How an Option Arm Works

The minimum payment can only increase or decrease by 7.5% per year. There would be an adjustment to your payment is rates have moved up or down. After 5-years an option arm will recasts which ensure your loan will be repaid within the given term or 30 years. This means your new payment would be calculated to pay the loan off in 25 years.
Since the minimum payment is so low you may not be paying off all of the interest each month. This is called deferred interest and will be added to your principal balance. Deferred interest can be tax deductible when you refinance or sell your home.
A lifetime interest rate cap limits how high your interest rate can reach.

One of the most effective Pay Option ARMs available are those that have a true bi-weekly feature. This feature, when holding onto the loan for more than 3 years can dramatically reduce the deferred interest and actually help pay the mortgage down, often faster than a conventional 30 year fixed mortgage, over a 30 year cycle. Thus the borrower gets the best of both worlds, the lowest payments possible with very little interest expenses over the life of the loan.

The pay option ARM program frees up a tremendous amount of cash flow.

Pay option ARMs are a great way to manage your cash flow. However, keep in mind that, when you make minimum payments, you are not paying all the interest due for that month. This unpaid interest is added to your mortgage balance.

Pay option ARM mortgages can be used to refinance your current mortgage or to finance a home purchase. Pay option ARMs are also known as option ARM, 12 month MTA, cash flow ARM and other titles.

Option arms or the pick your payment loan can adapt to fit your lifestyle. They offer flexible payment options and qualification standards. Investors like them for there low payments and cash flow potential.

Pay Option Arms are good for investment properties, where a higher cashflow is desired in the first few years of ownership.

This loan very popular with borrowers who are self-employed, work on commssion or have variable income sources. They enjoy the payment flexibility that the PO ARM program offers. In a month when income is low and money is tight there is the minimum payment to fall back on as conversely in a month where things are good they can make a higher payment.

Pay option ARMS usually have hard pre pay penalties that range from 1-3 years. Ask your mortgage broker about different pre pay options and how they will fit into your future financial plans.

A few words of caution: If you choose to pay the minimum payment option, your payment will not cover the cost of the interest payment and your loan balance will increase. This is called Negative Amortization. If you find yourself with a negative amortization option arm, you'll be adding to your mortgage debt every month. The difference between the minimum payment and the interest-only payment is not discarded - it goes back into your principal loan amount - in effect growing the amount you owe every month. It's best to only use the minimum payment option in the case of a tight money month.

Pay Option Arms are fantastic opportunities for Apprentice workers to purchase a home they will be able to afford 3-4 years from now when there apprenticeship is done, right now.

Most homeowners consider Pay Option ARM for one or more of the following advantages this mortgage program offers:

1. To be able to buy more home with the same income
2. To be able to allocate a bigger portion of income towards other debts
3. To have control over tax deductability of mortgage interests from year to year
4. To off set seasonal incomes
5. To take advantage now of anticipated increase in income

A Pay Option ARM is one of the fastest growing mortgage products available. This program allows the borrower the most flexibility with their mortgage payment each month by allowing, usually, 3-4 different payment options on each mortgage billing statement each month. Option 1 is generally the lowest payment option which can incur negative amortization. Option 2 is usually an interest only mortgage payment. Option 3 may be a 15 year mortgage payment. Finally Option 4 may be a 30 year mortgage payment. The Pay Option ARM is great for self-employed and commissioned borrowers who may not receive a steady income. This gives these borrowers the opportunity to pay incredibly low monthly mortgage payments during slow months and pay their normal payments during the other months.

What to compare when choosing an option ARMs - Although there are multiple things to consider when comparing option ARMs here are few of the basics.

Loan term
Initial interest rate - or start rate.
Initial interest rate period - or commonly referred to as introductory period. For example with a 1 month option ARM the initial interest rate is for the first month only.
Periodic adjustment – how often the interest rate will increase.

While in other mortgages borrowers are generally shopping for the bse rate with the least points, option arms are a little more complicated. You should examine the index and margin. The index is the variable portion of the rate, do some research about the various indexes to determine which will be fit your lifestyle best. The margin is the fixed portion. As with anything make sure when shopping you compare apples to apples, compare margins on the same index, etc.

Different lenders will follow different indices. Some follow the MTA and some even have there own indices such as the COSI or CODI.

When comparing option arms make sure to compare the lender fees. Often times lenders have the same programs but the fees can be different.

The margin, index & closing costs will all reflect into the APR but an Option ARM is more difficult because you must find everything that you are looking for. Such as how much will your payments increase each year and what is the payment rate (1%, 1.5%...).
After a thourough interview we can then place you in the proper loan program.