PayOption ARM

Applying for a mortgage loan can be one of the most stressful experience in one's financial endeavors. Besides qualifying for the loan, one must worry about knowing what loan product is the right one. One has to consult with loan officer how long they plan to stay in the property and so the loan officer can provide advice according to one's needs. The loan officer must help him/her select from either a 5/1 LIBOR I.O. ARM or 1 month COFI Pay Option ARM. The loan officer must make sure they know what they are helping the client with selecting the right loan. Unfortunately, the loan officer doesn't know what they are helping the client get into the majority of the time.

When the client asks to help him get the lowest payment, most lenders are thinking PayOption ARM's because they help the borrower save on the monthly payment by provding the PayOption ARM with a 1%-2.10%, which will allow the low monthly payment be achieved. This loan actually save you a lot money if you compare this loan with other ARM's or loan products. However, the loan is not being explained to the borrower, which makes him ignorant about the loan product. Let me explain to you the way the this loan product works.  

The PayOption ARM provides you with four pay options each month. You have your minimum payment, which is the start rate payment of 1%, your interest only payment, principal and interest (P&I) at 30 years, and 15 year fully amortized P&I option. Besides having the start rate, the loan also has a fully index rate. This fully index rate has a margin and an index rate.  The margin of the fully index rate is fixed through the whole life of the loan. The index rate is what will adjust on a monthly basis. The minimum payment is fixed for 12 months and then it adjustes at 7.5% every year. In other words, the payment goes up each year by 7.5%. Also the difference between the minimum payment and the interest only option is accrued interest. That accrued interest will be tacked on back to your loan, which can send you into negative amortization. After the fifth year of the loan, the loan will recast forcing you to pay fully amortized payments. Will this send you into payment shcok? Yes, it will.

The common index rates used for this loan are London Inter Bank Rate (LIBOR), Monthly Treasury Average (MTA), Cost of Funds Index (COFI), Cost of Deposit Index (CODI), and Cost of Savings Index (COSI).  The LIBOR and MTA are market driven. This makes them volitile and will change with market changes. On the other hand, they offer low margins. The COFI, COSI, and CODI are cost driven so they are less volitile. However, their margins are higher. Helping one select the right index depends on the client's situation and current market conditions.

This loan was not designed for everyone. This loan was designed for people who like to leverage their money on a monthly basis by making the minimum payment. Then at the end of the year they pay the accrued interest. This loan was also designed for self employed borrowers, which gives them the flexability to pay according to their monthly or season financial situation. It was also designed for those investors who want to maximize on the cash out they take and invest it in more real estate or an asset accumalation which will put them in a better financial position in the future. However, this loan was not designed for anyone not working, on social security, fixed income, W-2, or first time home buyers. This is a sophisticated mortgage financial instrument that can make you or brake. You have to be a little mortgage saavy to obtain this loan product.

I have heard many wrong information given to clients by other loan officers. I have heard that the 1% start rate is fixed for 30 years. I am not kidding. I have also heard the I.O. and 30 Yr. P&I and 15 Yr. P&I are fixed and will not adjust. Who is allowing these incompetent loan officers to help people with their biggest investment.

I hope this information I have provided will give you some valuable information about the PayOption ARM loan product. If you have any questions, please don't hesitate to call me. I will provide you with some valuable advice you can depend on.