Have
you heard about or been interested in finding out more
about option one mortgage
loans? They are becoming very popular, but its important
to understand how they work before you apply for one.
I will describe, in this article, an overview of the
most common type of option ARM mortgage loan or option
one mortgage loan.
How do they work?
Option one mortgage loans are basically interest only
mortgage loans, except that the first year, you pay
only 1.25% of the interest on the loan. The remainder
of the interest that is accruing is being added to the
loan amount. The second year of the loan you pay more
interest until gradually you are paying either full
interest only payments or fully amortized payments (interest
& principle). The reason the loans are called option
loans is because every time you have a payment due,
you have the option of paying the less than interest
only portion, interest only or a fully amortized payment.
This option would be good in a situation where your
income is sporadic.
This mortgage loan
type typically gives you 4 payment options in every
bill.
Here are your typical
monthly payment options:
Option #1 –
Pay a 15-Year fully amortized payment amount (p&i)
Option #2 –
Pay a 30-Year fully amortized payment amount (p&i)
Option #3 –
Pay the interest-only portion of the loan (Interest
Only)
Option #4 –
Make a partial interest payment (1.25% - 1.95% depending
on your loan type) and defer paying the additional interest
to the total loan amount. (Deferred interest can be
counteracted by making bi-monthly payments and by property
appreciation)
This type of loan
is good if you want to:
Wait a while to
refinance again – If interest rates drop again,
so does your payment. If you want to accelerate your
payments and increase equity quick, pay more on your
loan and it will be applied to future payments &
will be directly applied to the principle balance. Will
you want a 30-year loan? Keep the option to pay your
loan as a 30-year, 15-year, or interest only payments.
Have an adjustable
rate mortgage but want stability – This loan has
a payment cap. The interest rate on this loan is based
on the 12 month-MTA index, the most stable index of
the 4 main indexes (COFI, LIBOR, MTA & CMT). This
index is always below prime. The interest rate is based
on the world economic markets which have been steadily
coming down over the last 3 years. This loan has a 5-year
fixed payment option as well.
Invest your payment
savings in something else – This could open up
opportunities for you if you could invest in real estate,
the stock market or another investment when you use
the extra $500-1000+ a month you free up from your property
payment.
Pay off debt with your payment savings – You can
use the payment savings to pay off other debt.
Have security
and options in your mortgage loan – The main benefit
to this type of loan is the security of a mortgage payment
that you control. You decide at any time what kind of
a mortgage you want. If all goes well in your future,
you have the freedom to pay your 30 year loan into a
15 year loan without even consulting another mortgage
broker.
Get more home for your money – You can qualify
for more home with these low payment options.
Who Can Qualify?
Qualifying for this loan is basically the same as any
other loan, it is based on credit, equity & assets,
if you are strong in 1 of these or 2 of these, you could
probably qualify and with lowest rate possible.
What if I want to
take out a stated income loan? “Stated Income”
or “No income/assets” loans are possible
with this Option One Loan.
These are just general
guidelines and information about this type of loan.
You will want to discuss all of these details with your
broker or lender before you actually complete the loan.
These factors may vary with each individual lender.
Many lenders do not offer their customers this type
of loan. If you are seeking an option one or option
ARM loan, you will need to talk to your broker about
it or find a broker that can do this type of loan. To
see our recommended lenders for this type of loan. Visit
here: Option One Mortgage
Lenders.
About
the Author
Written by Carrie Reeder, Owner of ABC Loan Guide. Carrie's
website is an informational mortgage loan website. Her
website has articles and a list of recommended mortgage
lenders for many different types of mortgage loans.
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