I purchased my home a yr and half ago and I have a payoption arm loan. My payment are 3 times more than when we 1st purchased it and the rate has gone up to 7.65%. I'm trying to refinance and get my payment down, and the broker suggest the best way to go is a 30yr interest only loan in which I can pay more each month for the principal. Loan amount is for 430,000 with interest at 6.50%.
2006-12-07 04:44:56 · 6 answers · asked by mmpoohbear2002 1 in Business & Finance ➔ Personal Finance
For future reference, if you ever mortgage with an ARM, you seriously need to pay attention to the government's interest rate decisions. In the US, they have been steadily going up for well over a year. This drastically affects your ARM.
A 30-year fixed (with the rates currently steady or on the rise) is most likely the best option for you right now. You'd be refinancing the current mortgage which will leave your equity intact (unless your home value drops). This will keep your payments steady and you can keep an eye on the mortgage interest rates and refinance when and if they plummet again.
2006-12-07 04:52:19 · answer #1 · answered by dougzinboston 4 · 1⤊ 0⤋
That depends on you. An IO loan will recast every 5 years in most cases. What that is -- very simply this. You have the right to pay as much as you want any given month on the loan. You must make the interest for sure and any $$$ over that is applied to the principal balance. At the end of 5 years the balance on the loan will recast and you may end up paying a heck of a lot more than you thought IF YOU DID NOT PAY EXTRA ON THE NOTE. With that beig said depending on the provissions of the note you may still go an additional 5 years IO and for sure at the 10th aniversary you willbe recast again and get a 20 year amortization at that time. If you still have not paid on the pricipal thenyou will be sitting there with what will be just a 20 year note to pay.
This can be a good thing or a bad thing for you and your family. If you are in a rising market and think you will sell in a few years then you may be ok. If you are planning on staying in the home then I would not recommend this as a loan option to you unless you will have no children at home in the next 5 years and have substantial increases in pay over the next 5 years to cover any short falls when you recast. The only thing this loan does is give you an option on how much over the interest only note you can pay or not pay monthly. Truth of the matter is the P&I monthly should not be that much greater than the IO is monthly. If you can only afford the IO payment then you should probably sell this home and down size since you are probably a foreclosure waiting to happen.
Hope this helps
I am a mortgage banker in Tennessee.
2006-12-07 05:01:44 · answer #2 · answered by golferwhoworks 7 · 0⤊ 0⤋
Keep in mind that it is an interest only payment that you are required to make for a certain amount of time. The principal balance of your loan will not go down unless you apply more to your monthly payment.
I wonder why the broker is suggesting a $430,000 loan. It is considered a Jumbo loan in single family properties and you will have higher interest rate. Ask the broker is you can do a 1st and 2nd to avoid any mark-ups on the rate.
Also, for those with good credit, rates for 30 year fixed rate loans are well below 6.5%. Maybe you should get a second opinion.
2006-12-07 04:56:12 · answer #3 · answered by vmblank 2 · 1⤊ 0⤋
OK, if you could pay $1071 per month then it is OK. If you paid $1071 per month then you'd be paying the amount if it were a 30 yr fixed. That way you'd end up with equity after then 10 years and maybe going with the IO loan you're getting a lower rate for that 10 years. (Check first to make sure that there are no pre-pay penalties for making the larger payments.) BTW, does that loan change to adjustable after the 10 years? Taking an IO loan and still paying the full amount as if it were a 30 year fixed would let you pay a smaller payment in the event of family financial problems.
2016-05-23 03:51:56 · answer #4 · answered by Pauline 4 · 0⤊ 0⤋
30 Year fixed loans are the best you can get. Stay away from the variables, even if they offer a lower rate.
2006-12-07 04:58:46 · answer #5 · answered by Anonymous · 1⤊ 0⤋
Why would you not want to own your home? If your have problems with the ARM, you'll have a lot more with interest only.
2006-12-07 05:50:25 · answer #6 · answered by Sun and Sand 3 · 0⤊ 0⤋