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Do you have a Negative Amortized Adjustable Loan?
Most of the adjustable rate loans that borrowers have received in the past few years were the Pay Option Arms. These adjustable rate loans have the possibility of negative amortization. Negative amortization happens when you make the minimum monthly payment and not the actual note rate (index + margin, in most cases) on your loan. The note rate is usually much higher than your minimum payment. The difference between the note rate and your minimum payment gets added to your mortgage balance each month. While in some situations, the Pay Option Arms can be a great loan, but many consumers have received these loans and did not fully understand how they work. Please see below for a few examples.
Here are a few types of Pay Option Arms that you may have:
1.) The first Pay Option Loan is a straight negative amortization loan with a start rate as low as 1%. The payment starts at 1%, but after the first few months, the actual interest rate charged to the borrower is the note rate. This is usually calculated by adding the index and the margin together. This rate can change monthly. When you receive your monthly statement, you usually have four different payment options. The minimum payment, interest only, a 30 year amortization payment, and a 15 year amortization payment. If you choose to make the minimum payment, then the difference between your minimum payment (in this instance it is 1%) and the note rate is added to the balance of the loan.
2.) The second type of Pay Option Arm has a fixed note rate. These loans usually have a minimum start rate of 2 - 3%. The minimum payment is usually fixed for the first 5 years. This loan works the same as the above loan except the note rate does not change monthly. So, the negative amortization is always based off the fixed note rate for the first 5 years. For example, if you have a $500,000.00 loan with a start rate of 2%, your minimum payment would be $1848.09. If the note rate is 6.75%, then the interest payment on the note rate would be $2812.50. The difference between the minimum payment and the actual note rate payment is $964.41. This is the amount that would be added to your balance every month unless you make the interest only payment. As you can see, if you pay the minimum payment every month, your equity will be eaten up by the negative amortization, in this case that could be up to $11,572.92 per year.
A few benefits of refinancing your adjustable are:
1. Fixed rate payment
2. No more negative amortization
3. A lower fixed interest rate, with a lower monthly payment than the fully indexed note rate on your current adjustable rate loan.
4. There are many loans available to help keep your monthly payment low without negative amortization such as interest only loans, 30, 40 and 50 year amortized loans.
Please ask yourself the following questions:
If you answered yes to the above questions, it may be worth it for you to refinance. There are many new programs available to choose from including: interest only loans, short term fixed rate loans (3,5,7, and 10 year), the regular 30 and 15 year amortized fixed rate loans and now we also have a 40 year amortized loan.
If you would like to be pre-approved for a new loan, please click here. If you would like to discuss your own personal situation, please E-mail us or call 818-920-1600. If you would like to apply for a refinance, .click here
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Do you have a no negative amortization adjustable?
If you took out your current adjustable rate in the past few years, you have probably seen a consistent rise in your interest rate from when you got your loan. As the economy gets stronger , the interest rates will start to rise. At this time, the fixed rates are almost the lowest they have been in the past 20 years. Even if your adjustable is still low at this time, it may be worth it for your to investigate refinancing into the fixed. Please ask yourself the following questions:
If you answered yes to the above questions, it may be worth it for you to refinance. Please see below for examples of typical refinance situations and savings! For further information, please E-mail or call 818-920-1600. If you would like to apply for a refinance, .click here
Here are a few examples of a typical situation:
1. The borrower took out his adjustable loan approximately 2 years ago. His loan balance is $300,000 and his rate is now at 7.0%. He plans on keeping the property for the next ten years.
If this borrower refinanced on today's 30 year fixed rate he would save $245.00 per month. It would take this client approximately three years and 2 months to make up the cost of refinancing. At the end of the ten years when the borrowers sells his house, he has saved $20,400.00 (This is after the payback of the costs on the loan).
2. The borrower took out his adjustable loan approximately 2 years ago. His loan balance is $500,000 and his rate is now at 7.25%. He plans on selling his property in 6 years.This borrower has a few options for refinancing. The first option is to take the 30 year fixed rate loan. If he refinanced at today's market rate, he would save $412.00 per months. It would take this client two years and 6 months to pay back the cost of refinancing. At the end of the six year when he sells the property, the borrower has saved $16,664.00 (this is after the payback of the cost of refinancing).
The second option would be to refinance into a 30/7 year loan. This loan is fixed (at a lower rate than the straight 30 year) for the first 7 years. After the seven years, the loan will rollover into the market rate at that time for the remaining 23 years. If the borrower decided to take this loan, then his monthly savings would be $492.00. It would take 26 months to repay the costs of the loan. At the end of the 6 years the borrower would save $22,400.00 (Again, this is after the payback of the costs of refinancing)
These are just a few examples of how you can save by refinancing. If you would like to discuss your own personal situation, please E-mail or call 818-920-1600. If you would like to apply for a refinance, .click here
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