Minimum Payment Mortgages -How they work and are they the right mortgage for you?

Current Rates start at 1% (minimum payment option)

Fixed Payment Option up to 5 years.

40 YEAR TERMS ALSO AVAILABLE!

The Minimum Payment Mortgage is an ARM (Adjustable Rate Mortgage). 

It consists of taking an index (as listed in the Wall Street Journal), then adding a margin and we end up with your final interest rate.

Unlike other ARM's where the principal and interest or a simple interest payment is calculated from the total of the index and margin, the Minimum Payment Mortgage offers 4 monthly payment options every month, giving you the opportunity to choose which payment you make based on your personal needs at the time the payment is due. This monthly payment "option" is where the Minimum Payment Mortgage derives its name. A great benefit to this type of loan is that any principal that you pay into this mortgage will be reflected in the next months statement as a reduction in your loan balance, and the new payments are calculated on your new, reduced balance. You can actually drive your payments down lower with each principal payment!

Four Flexible Payment Options

There are 4 payment options to choose from each month for your mortgage. You actually get to select which payment that you prefer to make for any particular month. This is the primary advantage of choosing this type of mortgage. This Minimum Payment Mortgage will help you better manage your monthly cash flow, by allowing you more flexibility in how much you will put into you mortgage payment each month. Your Flexible Payment Options are:

1.      THE MINIMUM MONTHLY PAYMENT

2.      INTEREST ONLY PAYMENT

3.       30-YEAR PAYMENT

4.       15-YEAR PAYMENT

Minimum Payment Flexible Option is the usually the lowest of the 4 flexible payment options and should be considered like a credit card payment for the simple reason that this is truly a minimum payment option. With this payment you are paying neither the full amount of interest due nor significant principal. The interest that does not get paid gets added back into the interest due on the loan and this increases your actual loan balance - This is called negative amortization or deferred interest. The 1% interest rate may actually be 5.25% and the unpaid portion of your payment will be added to your balance still due to the lender.

**An important note about this negative amortization is that many borrowers choose this option because of the consideration that the appreciation on the property may in fact be at a greater or at least the same rate of the negative amortization of the loan. In other words, although the balance of the loan increases each month...the equity may still be building faster through appreciation.  The borrower benefits by using his/her payment as they see as the the most beneficial to them, their cash flow and investments on any particular month.

***Also important to note on this loan...to reduce the risk of negative amortization getting too far out of "whack" the lender sets a limit to your negative amount, that it should never exceed 10% of the original loan amount.  If this ever occurs the rate will be recast to a rate to eliminate the underage of the payment.

Interest Only Flexible Payment Option  This flexible payment option will prevent any negative amortization on your loan. This Option is also still a low payment option since it is based on a simple interest calculation each month. That is...the balance of your loan - times the interest rate  - and then divided by 12.

(Example: $250,000. x 5.25% = $13,215.;   $13,215. divided by 12 = $1,093.75 per month.)

30 Year Flexible Option Arm Payment  This is a 30 Year, Fully Amortized Payment that will consistently pay towards both principal and interest.  A traditional payment

15 Year Flexible Option Arm Payment This would be the most aggressive payment option in paying down your principal. This would pay off the mortgage in full in 15 years.

See an example of an Option Arm Payment  Mortgage Statement
  

An issue for many homeowners is managing monthly income and expenses, or "cash flow". Income varies for many reasons and unplanned expenses come up when least expected. For many our mortgage payment  is our largest monthly expense, and also the least flexible. The Option ARM was designed to give you control over your mortgage payment. You can choose one of four payment options monthly based on your specific cash flow needs.

        Minimum Payment    A payment is set for 12 or 60 months at a reduced rate. The minimum payment rate for the 12 month option is 1.00%. Fixed payments are available up to 5 years. This maximizes cash flow but may also defer payment of interest on your mortgage allowing flexibility in managing your tax deductions. This minimum payment can not increase by more than 7.5% each year.  There are also  important tax considerations of the loan such as the ablility to pay in a lump sum towards interest at the end of the year if a larger tax break is needed at that time. If you have concerns over deferred interest,  it is only a small amount of appreciation required that is required to offset it.

        Interest Only Payment    Defer paying principal on your loan and improve your monthly cash flow. This is not available if the interest only payment is less than the minimum payment.

        Fully Amortizing Payment Options    You have the ability to make a full payment based on either a 30 year or 15 year payment schedule. I have included a Option ARM statement as well.

The Option Arm Mortgage allows you to choose your index from the 1 month LIBOR or the MTA .

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