If you watch TV or listen to radio, you hear or see ads (too many ads) about mortgages with monthly payment very low on a $150,000 mortgage. Payment like $435 a month and you are told you can save up to 60% or 65% on your monthly payment. Those companies will tell you: “Why pay $1,000 a month on a $150,000 mortgage while you can pay $435 a month?” I know why, I’ll tell you soon!
Or, they will offer you a 1.5% mortgage rate on your next mortgage! First thing, let me explain what those offers are. They are legitimate offers but they don’t suit everybody.
I will keep it simple and I won’t go into micro details. They will charge you Prime Rate plus a specific percentage. That rate will change every month or every six months depending on your option. A Pay Option ARM offers you 4 ways to pay your mortgage every month:
1- 15 year Fixed: Your mortgage is amortized on 15 years. You pay principle and interest.
2- 30 year Fixed: Your mortgage is amortized on 30 years. You pay principle and interest.
3- Interest Only: You will have the option to pay interest only without principal.
4- Minimum Payment: Your minimum payment is the lowest payment you can do. That would be the $435 a month. You don’t pay any principal but the worse part is you don’t even cover the interest and that creates a problem. Every month, the bank will add the difference to what you owe. Basically, every month you owe more than what you borrow. It is called negative amortization. Some bank will even let you go up to 115% of the value of your house. You will owe more than the value of your house. I smell foreclosure!
Those programs are excellent if you like to flip houses. You buy a house for $150,000, you fix it in 6 months and you sell it back for $225,000. Even if you have to pay a little bit more after 6 months, it doesn’t matter you make good profits since you got the house and fixed it for $435 a month. Pay Option ARM are not offered in every state. Some states won’t allow it unless you are federally charted. Many Mortgage companies will use that tactic to get you to call in so they can offer you something else.
Once again, ask questions! Read your papers! Enjoy!
You can read more about Mortgages and tricks they don't want you to know at : http://simpleopportunities.blogspot.com/
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