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I'm interested in option ARMs, property in texas, 85% LTV and it's owner occupied/. My score is 755. is anyone there to help us. Any other options other than option ARMs This is on my second home, I do have a first home with a fixed rate loan.

ckalvesmaki · Posted: Thu Sep 27, 2007 5:43 am Post subject:

Yes Option Arms are available in TX.......any good broker should be able to put one together for you.

Guest

any negatives to the loan? are there better options

ckalvesmaki · Posted: Thu Sep 27, 2007 6:20 am Post subject:

The negative to an option ARM is the fact that you are deferring interest.....ie adding back to your principle.if you make the smallest payment. There are some products out there and available that allow for less potential for that to happen and offer longer fixed period...Is there a reason you want an option ARM? What kind of mortgage do you on the home currently?

Posted: Thu Sep 27, 2007 8:04 am Post subject:

2 things.
You can have only one owner occupied property. The second one is either 2nd/vacation home or is a rental. So which is it?
Option arms are down to being almost nonexistant. Reason for that being is because no one is buying them. Option Arm is the fastest and easiest way to foreclosure for uninformed borrower.
Here is how it works:
1. You have four different options as to how you can pay your mortgage.
a) 15 yr repayment. (repays the loan in 15 years)
b) 30 yr repayment (repays the loan in 30 years)
c) interest only (interest only payment / any $$ over this payment goes towards paying your balance)
d) minimum payment (calculated as if you had 1-2% interest rate on your mortgage, depending on the lender reguardless what the actual rate is. Usually you end up with a payment that does not cover your interest. Any ammount that is not covered by your payment is then added to your principal and now also increses your interest.
Now there is a clause in your mortgage papers on an option arm that says that if your principal balance goes over 110-120% of your original balance the loan will reamortise itself into a 30yr fiixed rate and you will be responcible for the full payments.
Even if this doesnt happen in 5 yrs the loan reamortises itself to be repaid in 25 years anyway.
So example:
Loan ammount: $200,000 Interest rate: 7.25% (typical) Minnimum payment: 1.25%
15 yr payment: $1825/mon
30yr payment: $1365/mon
Interest only: $1208/mon
Minnimum Payment: 665/mon

So if you paying just the minnimum payment you adding 543/mon towards your principal.
And when the loan reamortises in 5 years you will be paying at least 3 times as much as your minnimum payment.
This loan is designed for creating cashflow and is great in a bull market when you can resell the property in a short period of time. When your home value is growing ect. It allows you to buy 2-3 times more home for the same ammount of monthly payments. Great for investors however its a short term solution. Most borrowers dont understand this and use the program to get into the home they cant afford.
So be very carefull

evolovik26 · Posted: Thu Sep 27, 2007 8:23 am Post subject:

oops that was me ^^^^^

larry · Joined: 27 Jun 2007 Posts: 3322 474.67 Dollars($)

Hi John,

The most negative side to an option ARM loan is its interest rates that remain short lived for a particular period after which it increases gradually and require you to pay at the fully amortized rate. Thus, your loan balance gets increased.

Another down side to this loan is that it often carries a prepayment penalty of 1-3 years. So if you sell or refinance during that respective period, it can cost you a lot.

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