Option ARM Mortgage Loan - Is This Really for You?What happened to the days of a 15 or 30 year fixed rate mortgage loan? Ultimately this is the safest and most popular mortgage loan product in our industry, but new mortgage products are hitting the market, and we in the mortgage business are using them to our advantage; ever heard the radio advertisement saying, "buy a $200K home for $643.28 per month; call XYZ Mortgage Company to apply"? The product used in this ad is called an Option ARM, and I feel it's my duty as a mortgage professional to tell you what this product is in case you happen to meet up with that loan officer whose only concern is to make a fee, and not have your best interest in mind. Here's how this program works: when you pay your mortgage back you're given 4 monthly payment options. Here are the 4 options: 1. Year 1 minimum monthly payment = your principle and interest payment calculated at a 1.00% rate with a fully indexed rate of roughly 5.00% (the other 4% gets tacked on to the principle making your balance go up with each payment you make). Example: $200,000 @ 1.00% interest = $643.28 per month. 2. Interest only payment. Example: $200,000 X 4.997% / 12 = $832.83 per month (no principle would be paid down, but the principle wouldn't go up either as your paying all the interest monthly). 3. 30 year amortization based on the fully indexed rate of 4.997% = $1073.28 per month. 4. 15 year amortization based on the fully indexed rate of 4.997% = $1581.27 per month. Now that you know how an Option ARM works is this really for you? As for most of us no: why? Most of us will pay the minimum payment due and let the interest build up on the balance. If you live in a region where home values are rapidly increasing that's okay, but if you live in a region where home values aren't increasing so fast you could be in trouble. If you try and sell your home you could be bringing thousands of dollars to the closing table to payoff this mortgage because your home didn't sell for enough money to cover the balance owed. If you use this type of program to buy more home than you can afford it's going to catch up with you in the long run. My advise is to stick with what you can afford, if that's a 30 year fixed mortgage on an $100,000.00 home then so be it. Who can benefit from an Option ARM? Are you just graduating college and starting an entry level job, and you know your income is going to greatly increase in the next couple of years? An Option ARM could be for you. Do you need to reduce your monthly payment temporarily due to financial hardship or debts getting out of control? An Option ARM refinance could be for you. Are you a smart investor and would take your monthly payment savings and invest it in the market for future financial security? An Option ARM refinance could be for you. In summary, my job as a mortgage professional is to show you a mortgage program that best fits your needs. If you're considering an Option ARM mortgage loan, but you're not as disciplined with your finances as you feel you should be I wouldn't recommend this program for you. However, you might use an Option ARM to your advantage if you're a shrewd money manager and you plan to stay in your home for the long term. Good luck on your mortgage refinance or new home purchase. The author of this article is Marc Sisk, I'm a mortgage professional with 7 years of loan origination experience; my web site's title is Mortgage Calculator | Refinancing Home Loan | Mortgage Lender. By being an affiliate branch of a large mortgage lender I'm able to do mortgage loans in most of the United States. Visit my web site to see if we're licensed in your state. This article may be reused and reprinted with the author's permission. Please email me the link to this article for viewing.
MORE RESOURCES updated Fri. April / 26 / 2024 Mortgage Refinance Rates: Compare Current Rates Business Insider 10-year refinance rates: What to know about the current market CNN Underscored Should You Refinance Halfway Through Your Mortgage? Bankrate.com How to Refinance Your Mortgage NerdWallet Loan Modification Vs. Refinance Bankrate.com 30-Year Mortgage Refinance Rates Business Insider Mortgage Interest Rates Today, April 24, 2024 | Rates Still Slated to Go Down This Year Business Insider Only Half Of Black Seniors Approved For Home Repair Or Refinance Loans To Age In Place Block Club Chicago 15-Year Mortgage Refinance Rates: Compare Current Rates Business Insider Mortgage Interest Rates Today, April 22, 2024 | The Still-Hot Economy is Keeping Rates High Business Insider Mortgage Interest Rates Today, April 21, 2024 | Rates Remain Near 7% Business Insider How To Choose The Right Kind Of Refinance For You Bankrate.com How To Get The Best Refinance Rate Bankrate.com Will Interest Rates Go Down in May 2024? | Mortgage Rates Forecast The Mortgage Reports Average Mortgage Interest Rates: Mortgage Rates by Credit Score, Year, and Loan Type Business Insider The best mortgage lenders for refinancing in April 2024 CNN Underscored Best Mortgage Refinance Lenders In 2024 Bankrate.com Should You Refinance Your Mortgage In 2024? Bankrate.com MBA: Mortgage Applications Decreased in Weekly Survey Calculated Risk Current mortgage refinance rates CNN Underscored When to Consider Refinancing Your Mortgage Business Insider Best Refinance Lenders of April 2024: Refinance Your Mortgage The Motley Fool How To Refinance A Rental House Bankrate.com Mortgage Rates Chart | Historical and Current Rate Trends The Mortgage Reports Refinance Requirements: What You Need to Refinance Your Home in 2024 The Mortgage Reports Best Mortgage Refinance Lenders of April 2024 Business Insider How Soon Can You Refinance a Mortgage? NerdWallet How To Refinance An Underwater Mortgage Bankrate.com Conventional Refinance Rates and Guidelines for 2024 The Mortgage Reports 30-year refinance rates: What to know CNN Underscored Refinancing a Home Equity Loan (2024 Guide) MarketWatch Current 15-year refinance rates — and lenders that offer them CNN Underscored Mortgage Rate History: 1970s to 2023 Bankrate.com Mortgage Rate Forecast February 2024 Bankrate.com Mortgage Rate Predictions: Are 7% Rates Here to Stay in 2024? Norada Real Estate Investments When should I refinance my mortgage? To determine if a refinance is the right move for you, you’ll need to know the ... The Wall Street Journal Pros and Cons of a Cash-Out Refinance Bankrate.com What Credit Score Do I Need To Refinance? Bankrate.com Should I Refinance My Mortgage Now? When to Refinance As Rates Drop Business Insider Office of Research blog: A look at cash-out refinance mortgages and their borrowers between 2013 to 2023 Consumer Financial Protection Bureau The Sales Pitch for an 8% Mortgage: Buy Now, Refinance Later—for Free The Wall Street Journal Current mortgage interest rates: Mortgage rates today CNN Underscored Mobile Home Refinancing | Loans & Rates 2023 The Mortgage Reports CFPB Releases Study of Refinance Mortgage Loans Between 2013 and 2023 Consumer Finance Monitor
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