Get More Loan Options with the 1% Payment Choice Mortgage: Jumbo Refinancing or Home Purchase
Negative Amortization Loans have been reconstructed & represented to homeowners as the Payment Choice Loan. Is this the case of sneaky mortgage marketing or do these loans offer value? Let us take a minute and look at both sides.
Try and understand the complete mortgage spectrum of how the negative amortization loans works. Neg am loans are unique because they offer low monthly payments where the interest is deferred and added to the balance of the mortgage each year. Clearly nothing is for free, so the bank will make it money by betting that you keep the loan and defer the interest.
The neg am payment option is an are adjustable rate loan that is usually tied to the COFI, CODI or the MTA index. The loans are introduced with very low interest rates, starting at 1%. Obviously the 1% is not the actual interest rate to amortized for thirty years on the loan but rather the rate used to calculate the minimum required payment for the first year. The actual interest rate charged on the loan, beginning in the second month, is equal to the index plus the margin and adjusts each month as the index changes.
The Pick a Payment Loans offer 3 payment options:
Minimum Required Payment - Less than the interest due is paid monthly with the remaining interest owed being added to the principal balance which increases the outstanding principal balance. This is the negative amortization payment
Interest Only Payment - All interest due is paid but no principal paydown occurs and the principal balance outstanding remains the same.
Principal and Interest Payment - interest an principal is paid each month to complete the fully amortized loan in 30 or 40 years.
When the balance on a Negative Amortization loan increases to 110%,115% or 125% of the original balance, the loan converts to a fully amortizing loan, amortizing over the remaining period of the 30 or 40 year term. At this point you no longer have 3 payment options as now you are in the repayment period and are required to refinance or pay the fully amortized principal and interest payment. When considering a neg am loan make sure you know what you are getting yourself into. This is a great loan for investors, self employed, and people who anticipate a significant increase in income.
Over the last few years, Art has been a mortgage consultant who has trained many top loan professionals in Southern California. Art suggests the following sites: Mortgage Refinance Loan Outlet, Bad Credit Second Mortgages and Smart Home Refinancing.
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