$510,000 mortgage for $1698 a month... How is that possible?

Question

I see advertisements like this for mortgage companies advertising on respectable websites. How do they give a rate so low? Is it a scam?

Answer 1

Even at a low interest rate, the lender stands to make a lot of money off of a $510,000 mortgage. It's not a scam, but you also have to look at the fact that the $1698 a month is usually with 20% down. That's $102,000 that you're giving to the lender upfront. So, right off the bat, their making $102,000 off of you, not to mention the money they'll make over the next 30 years off of the mortgage itself.

Answer 2

This is a Pay Option Adjustable Rate Mortgage. The quoted payment is based on a teaser rate, ie a minimum interest rate. You then have four options to pay

First is the minimum payment based on the teaser rate. This minimum payment will not cover your entire interest for the month. The difference in interest NOT paid will be added to your principal.

Then, there is the interest only payment based on the true current interest rate. In other words, if the market prime rate is 6.375 then the fully indexed rate will be that or higher depending upon the profit that the company selling you the money (that is all that a mortgage is) wants to make. Remember whenever you want to pay the minimum payment, the difference in interest NOT PAID will be ADDED back into your principle.

Not smart if your home does not appreciate for more than what is added into the the principle from short paying.

Third, is the regular 30 year fixed and finally the 15 yr fixed.

The fully indexed rate is based on a flat margin and an index added to the margin.

This loan is good for areas where appreciation is high or where employment income flucuates ie., sales.

For more info re Pay option ARMS write me at [e-mail] for any mortgage questions.

Answer 3

These are usually pay option arms, loans that give you several different payment options (the minimum payment, interest only or principal and interest). The lowest payment they are advertising is actually usually around 1% (the minimum payment) - which is less than the interest only payment (the loan rate may be around 7.25%). What happens if you only make the minimum payment (not the interest only payment) the difference between the minimum payment and interest only tacks onto your loan balance every month. You could end up owing more on your mortgage than when you started. I don't recommend these loans for anyone who is doing 90% to 100% financing or an owner occupied property, especially if you don't have the means to make the interest only payment. A lot of people in California did these loans and due to dropping sales prices, they are having a hard time refinancing.

If you need a low payment - go with a fixed rate (interest rate does not change) interest only payment. At least if you make the interest payment monthly, you won't have additional money added onto your loan balance.

Answer 4

they are interest only loans where none of the money you pay goes toward the principal so you really are paying rent and have no equity

Answer 5

it's not a scam, but can be a quick way for you to lose equity in your home. read more about those type of loans here, http://www.choicefinance.net/mta-option-arm.htm