Home Purchase Loans with Increased Buying Power
Mortgage Loan Outlet discusses home purchase loans and increased buying power from reduced interest rates with negative amortization financing from Payment option ARM's.
Every option ARM is attached to an index, which always fluctuate. Margins can be determined and fixed before closing a loan, but the index cannot be fixed. They can be determined, as far as which index your loan will be tied to. At Mortgage Loan Outlet, our number one goal is to help our borrowers find home financing for their unique situation. We are dedicated to making sure that your mortgage lending experience is as painless and stress free as possible. Apply now for a free, no-obligation quote on a mortgage program, and let us help you reach your financial goals today!
More Purchase Power with Negative Amortization Home Loans
The negative amortization (NegAm) mortgage, also known as a deferred interest mortgage, pick-a-payment loan, option ARM (adjustable rate mortgage) and similar terms, has gained in popularity as housing prices soar. Just two years ago, this loan made up a low percentage of the market share. Now, the payment option ARM makes up more than 10% of the mortgage market. Negative amortization mortgages are "hybrid" adjustable rate mortgages with interest rates based typically on LIBOR, MTA, COFI and other publicly-available indices.
The difference between these loans and other ARMs is that the borrower typically had several payment choices: a fully-index payment (principal and interest), an interest-only payment or a minimum payment that doesn't cover all the interest which results in the negative amortization because the interest shortfall is added to the principal balance, causing it to increase rather than decrease like other loans.
With housing in fast-growing areas like Phoenix, Arizona and various parts California and the Pacific Northwest, house prices well exceed the conventional loan limits of $417,000 (the 2007 Fannie Mae and Freddie Mac limits), jumbo loans and 80-20 loans just don't offer the same affordability factors as Neg-Am loans. But, NegAm loans have come under legislative fire because of recent increases in foreclosures. John C. Dugan, the Comptroller of the Currency, indicates that a negative amortization mortgage can add 10 to 15 percent or more onto a home buyer's debt in the first five years of a payment-option loan. And, regulators now fear that with home price appreciation slowing down by quite a bit in some markets, option ARMs could leave home buyers "upside down" on their loans.
Another issue is that it's generally very difficult to get a home equity loan behind a negative amortization 1st mortgage because underwriters calculate the 1st mortgage balance by gross up balance 115% or 125% depending upon the mortgage note. In short, they take your existing mortgage balance and multiply it by 115% or 125% then divide it by your home's appraised value. If you are above 100%, you probably won't get a 2nd mortgage.
Should you get a negative amortization loan?
Linda Nelms, author of the popular column, "Ask Linda", offers this sage advice in her article, "Are Payment Option Mortgage Loans Worth The Risk?":
"You need to be realistic about budgeting your mortgage payment 6 months from now, as well as five years from now. Consider paying additional money towards the principal every other month. Ask your loan officer what the fully amortized payment would be for a shortened period, like 20 years. The additional money that you contribute to the principal will increase the equity in your home, and reduce the years you have to pay back the loan. If you have anticipated that you will not be able to pay additional money towards the principal, then you should consider borrowing less because if the housing market dips at all you could find yourself in trouble."
Negative Amortization Loans
These are unique loans that offer 3 payment options: Fixed, Interest Only or Neg Am
Terms offered: 30 or 40 years
Available Index: LIBOR, MTA, COFI, CODI, COSI
Interest Only Mortgage
These are adjustable or fixed loans that allow you to make a payment that just covers the interest each month.
Terms offered: 2/28, 3/1, 5/1, 7/1, 10/1