Mortgage Loan Basics Interest Only Loans Pay
Mortgage Loan Basics: Interest only loans, Pay Option ARM
To understand loans and mortgages, we must first understand loan limits. If your loan amount exceeds the amount below, you qualify for a jumbo loan, which leads to higher interest rates.
One-Family (Single Family) $ 417,000
Two-Family (Duplex) $ 533,850
Three-family (triplex) $ 645,300
Four-Family (Fourplex) $ 801,950
FIXED loans:
30 Year Fixed Mortgage Rates
This loan program is established for 30 years. Your interest rate will not change for 30 years. This is ideal for people who wish to stay at their current property for a long time.
20 Year Fixed Mortgage Rates
Fixed for 20 years. Your payment will be set higher than 30 years loan because your loan term is for 20 years. Interest rate does not change for 20 years.
15 Year Fixed Mortgage Rates
15 years fixed loan has a loan term of 15 years and will change in this period. Your monthly payment on the loan program will be much higher than 20 years and set down 30 years. With this loan program if you are planning to sell your home in 5-8 years. Interest rate will not change for 15 years.
ARM (Adjustable Rate Mortgage)
ARM loans are fixed for a certain period, in which after that period ARM loan is an adjustable loan. How do they work?
Each ARM Loan Program has these options:
1) Index: Most comon LIBOR Index
2) Margin: Is given to you by your lender, and it is the vote difference between the index and the interest and pay for the borrower
For example, 5 1 ARM. This loan is fixed for 5 years, after the 6th Year there will be an adjustable loan. Your loan officer will tell you what your index and what is your margin. Binds Typically 5 1 arm on 1-year treasury index and is around 2.00% -3.00%
The Index Rate + Margin = Fully Index. Your new note rate (interest rate) after 5 Year.
What about the 6th Year? What would be your payment?
Let us assume that your loan officer told you that your margin is 2.5% with 1 Year Treasury Index. You need to look at 1 Year Treasury Index for a particular month.
1 years from Oct.2005 Treasury is 4.18, and you know that your margin of 2.5%. Therefore, you new interest rate is 1 year Treasury 4.18% (index) + 2.5% (margin) = 6.68% for the beginning of the 6th Year.
Index rate moves are on a monthly basis, so your payment can flunctuate per month. In most cases, banks will be the end of a statement to advise you that your interest rate will change.
Protect 3) For the high index of consumer prices, implemented credit provider a CAPS.
An example is a 2 6 cap, which allows the interest rate on your ARM loan upwards or downwards by more than two percent per period for adjustment and has a total of six percent for cumulative changes. Therefore, a 2 6 cap on a 5% ARM will be a maximum rate (6 + 5%) allow no more than 11%.
In some cases, you will see 2 2 6 means that the 2% adjustment with a prepayment penalty of 2 years and six percent of the cumulative changes.
4) with one arm, you can use either a fixed or an interest, you can choose Only structural loans.
1 1 ARM Mortgage Rates
1 years ARM (Adjustable Rate Mortgage) is fixed for 1 year and in the 2nd Year there will be a set.
3 1 ARM Mortgage Rates
3 years ARM (Adjustable Rate Mortgage) is fixed for 3 years and in the 4th Year there will be a set.
5 1 ARM Mortgage Rates
5-year ARM (Adjustable Rate Mortgage) is fixed for 5 years and in the 6th Year there will be a set.
7 1 ARM Mortgage Rates
7 years ARM (Adjustable Rate Mortgage) is fixed for 7 years and in the 8th Year there will be a set.
10 1 ARM Mortgage Rates
10 years ARM (Adjustable Rate Mortgage) is fixed for 10 years and in the 11th Year there will be a set.
Interest Only loans
For example, if a 30-year fixed-rate loan amounting to U.S. $ 100,000 at 8.5% interest only payment .085 12 time is $ 100,000 or $ 708.34. This is an example of interest only payment.
Each loan payment consists of principal and interest payments. Here you will pay a monthly interest and principal versions, it will make to your balance, thus increasing it. You can also pay principal and interest.
If a lender offers a loan only interest on these loans are tied to an index such as ARM loans.
MTA Index: The MTA index generally fluctuates slightly more than the COFI, although its movements track each other very closely.
. 1 months MTA ARM Mortgage Rates
. 3 months MTA ARM Mortgage Rates
. 6 months MTA ARM Mortgage Rates
. 12 months MTA ARM Mortgage Rates
COFI Index: This index rise (and fall) more slowly than prices in general, what is good for you, if interest rates go down, but not good for you, when interest rates.
. 1 months COFI ARM Mortgage Rates
. 3 months COFI ARM Mortgage Rates
LIBOR Index: LIBOR is an international index that follows the world economic situation. It allows international investors to meet their costs of lending to the cost of funds. The LIBOR compares most closely with the CMT index and is open for rapid and large fluctuations than the COFI.
. 6 Month LIBOR ARM Mortgage Rates
. 12-month LIBOR ARM Mortgage Rates
Pay Option ARM Loan
Pay Option ARM into a new loan program, allowing customers to choose from up to 4 payments. This loan program is part of an ARM, make but with more flexibility, one of the 4 payments.
Commissioning varies from 1.000% to 4.000% on everywhere. Commissioning is held just a month after the interest rate changes monthly.
4 choises important are:
1) Minimum fee: Fot the first 12 months interest rate is calculated using the start rate after this rate is calculated annually.
Example:
Loan amount: $ 200,000.00
Initial Rate: 1.25%
Index: 3.326 (MTA as of October 2005)
Margin: 2.75%
Payment Cap: 7.5%
Fully indexed rate: 6.076% (ndex + margin)
Minimum Payment Changes:
Years 1 $ 666.50 minimum payment
Years 2 $ 716.49 = $ 666.50 + 7.50%
Years 3 $ 770.22 = $ 716.49 + 7.50%
Years 4 $ 827.99 = $ 770.22 + 7.50%
Years 5 $ 890.09 = $ 827.99 + 7.50%
The option ARM 7.5% payment cap limits how much the payment can increase or decrease each year, except for all five years (starting in the 10th year) in certain programs, if the cap is applicable. In the event your account balance exceeds the original loan amount of 125% (110% in NY), the payment amount may change more frequently, without consideration for the payment cap.
Because you pay for “minimum payment” this option is a payment of interest, the move added to your balance.
Minimum payment period for adjustment: The minimum payment is usually up to 12 months, unless negative amortization limit is reached.
Minimum Payment Cap: This is a limit to how much you can change the minimum payment. Your payment cap will be 7.5% for the first five years. On your next payment is due, the minimum payment can not increse or decrease more than 7.5%. If this is the case, be recast as a loan.
Recast (Revised) or re-calculating your loan is a way of limiting negative amortization (NEG-Clock). Option ARM recast every 5 years. If the loan is recast, the payment obligation, the loan is fully amortized over the remaining life of new minimum payment
2) Interest Only Payment: With Interest Only you will avoid deferred interest to you becausue pay principal and interest. If you only pay interest or principal payments of your loan balance will increase because you either a lump sum or interest payment of your loan balance, thus leading towards Neg-Am Loan to add.
Your payment can change on a monthly basis based on ARM index (LIBOR, COFI, MTA).
3) Full amortization 30-Year Payment: It is calculated monthly on the basis of the previous month interest rate, loan balance and remaining loan term. If you choose this option, you reduce your principal and pay off your loan on schedule.
4) Full 15-year amortization payment: It is from the first payment of interest.
Negative Amortization Loans (Neg-Am Loan)
Negative amortization loans calculate two interest rates. The first is to pay the second installment is the real interest rate. The real interest rate is computed simply as the index plus the margin without periodic caps. Borrowers are choosing to pay from those rates. Thus advertisers of negative amortization loans often refer to these loans as “payment option” loans.
A loan allows negative amortization is that the borrower is entitled to a monthly payment, the mortgage is less than the interest owed to actually make this month. For example, we say, we arrange a $ 200,000 loan with an adjustable seat and, currently at five percent. Simple interest on this loan is easy to calculate. Multiply the interest rate that the loan and you have the annual interest of $ 10,000. Divide $ 10,000 by 12 months and the monthly “interest only” payment of $ 833.33 or just here the formula for your monthly payments for interest only loans: loan balance x interest rate 12 = monthly payment.
Well, let’s say that there is a provision in the loan documents that the borrower can make a minimum payment on a “payment rate” to four percent. So that your payment would be lowest at $ 666.67, because the “payment rate” to four percent, not the actual interest rate, based five percent.
So, if you make the lowest allowable payment that you actually lose $ 166.67 in equity. The balance of the loan increases to $ 200,166.67.
Exotic Mortgage
You may have heard this term. So, what are they?
The newest and most exotic mortgages that are out there:
1. The 40-Year Mortgage: This is similar to a 30-year fixed rate mortgage, with the exception of the payment will be spread over an additional 10 years. The lender will charge a slightly higher interest rate as much as half a percentage point.
2. The Interest-Only Mortgage: With a variable rate mortgage, the lender may pay the borrower, only the interest on the first so many years of a mortgage. After the grace period, the loan is extended, essentially a new mortgage with the interest and principal payments, only the remaining years. See above for Interest Only Loans.
3. The Negative Amortization Mortgage: The interest-only type of mortgage a buyer can pay less than the full amount of interest. The difference between the full interest payment and the amount actually paid is added to the balance of the loan. See above for more information.
4. The Piggy Back Mortgage: This is actually two mortgages, one above the other. The first mortgage covers 80% of the value of property. The second covers the remaining balance at a slightly higher interest rate.
5. 103s and 107s: You may not need to save for a down payment at all. You can borrow 3% or 7% more money than your house is worth. These loans have the option of borrowing for the costs of closure and removal costs necessary. You can use them all in the mortgage market.
6. Home Equity Line of Credit: These are not just for those who own a house! They are commonly known as HELOCs, and they can finance a house purchase with an original credit line instead of a traditional mortgage. HELOCs are variable-rate mortgages tied to the prime rate. If you do this mortgage as your first mortgage, the interest is all tax deductible.