Fixed Rates, Lowest Payments

Fixed Rates, Lowest Payments - Love it or hate it, the Payment Option ARM or Pick a Pay mortgage has become one of the most popular home loans in the USA, accounting for over 40% of new loans since 2005, and is definitely the fastest growing option in high cost states like California, Florida, New York, New Jersey and Connecticut. While many people love the 1% start rates, there are a lot of people who don’t feel comfortable with the possibility of payments increasing in as little as 1 month on many of the most common programs. The common wisdom is that Option ARMs are incredible products for savvy homeowners and investors, but may be too powerful for the average homeowner to handle.

Introducing Hybrid Option ARMs
For the rest of us, an innovative class of new loans has been recently introduced for homeowners who want the security of a Fixed Rate mortgage, with the flexibility and exceptionally low payments of an Option Arm. These home loans go by many names, including Hybrid Option & Fixed Option Arms, but they have one thing in common: A fixed payment for several years. Some of these mortgages have fixed interest rates, some of them have fixed minimum payments which don’t go up, and some of them have both!

So what are the key benefits of Hybrid ARMs?
- Fixed Minimum Payments for 1, 3, 5, 7 10 or even 30 years
- Fixed Interest Rates for the Full Term on Many Programs
- Minimum Payment is typically 55% lower than a Regular Loan or better
- Increased Cash Flow, Decreased Risk Makes Housing Affordable & Secure
- Interest Only Payment Option Continues Even After Recast
- Greatly Reduces the Sticker Shock of a Fixed Mortgage
- Greatly Reduces the Payment Shock of an Adjustable Mortgage
- Greatly Reduces Negative Amortization
- Retains Flexibility of an Option ARM

Like an Option ARM, Your Payment Coupon Has 4 Options on it
1. Minimum Payment
2. Interest Only Payment
3. 15 Year Fixed Amortized Payment
4. 30 or 40 Year Amortized Payment

A Real World Example
Your Minimum Payment is generally close to half of what a regular fixed rate mortgage would cost, or otherwise would 3% or 4% lower than the fully amortized payment. Let’s take a look at a hypothetical scenario. Jane has a house in California which has been appraised for $400,000 and has a traditional fixed rate mortgage on the property of $200,000 on which she pays $1467.00 per month before taxes & insurance. If Jane were to refinance this mortgage into a Fixed Rate Option ARM, her minimum monthly payment would be about $800 dollars, about 55% of the cost she was paying previously. And both rate and minimum payment would still be fixed for 3, 5, 7, 10 or even 30 years. In fact Jane could take out $100,000 in cash out when she refinanced and she would still have a minimum payment of $1200 per month, and both rate and payment would remain fixed for 3, 5, 7, 10 or even 30 years.

But Do I Qualify?
Because of the very low effective rate of this financing and the very generous terms, these types of loans are generally available only to borrowers with credit scores of 620 or more. If you don’t know your credit score, you should call your loan officer and take a good look at your credit together. Other things to look out for are any late payments on your mortgage in the past 1 to 2 years, and of course any serious delinquencies like bankruptcies, liens or judgments on your credit report. Also, you will usually be limited to borrowing no more than 80% to 95% of the value of your home, although 100% ("No Money Down") financing is available to qualified borrowers. And if you talk to your loan officer and they haven’t done a lot of Hybrid ARMs, get a new mortgage company, because there are a lot of ways they can steer you wrong simply out of ignorance. These Hybrid loans are very new, very powerful financial tools and are best handled by those with extensive experience with the product.

Fixed Rate Minimum Payment Option Loans are an increasingly popular and lower cost alternative to Interest Only mortgages, and are often referred to as Secure Option mortgages.

Equity Based Lending - Equity based lending is another term for a hard money type mortgage loan where the lender pretty much disregards the income and credit history of the borrower and bases the loan on the equity of the property. These types of loans are typically originated very quickly.

How do I pick the best rate quote? - If youve been shopping for the best mortgage rates, youve probably discovered that its hard to tell which company can offer you the best rates with great service.

So just how do you go about rate shopping to find the best options for your upcoming refinance or home purchase?

When trying to pick out which mortgage company's rate quote is the best, you need to consider a couple of things. You should consider obviously the rates that are being quoted, the GFE (Good Faith Estimate) that the mortgage company has provided, and how much you trust the individual or company that you are working with. By using a combination of these 3 factors they should help you to make a good decision as to which rate quote to go ahead with.

If you are doing a 100% loan and you want to weigh the differences between one loan and two loans do the following. For example, if you have an 80/20 loan, of 160,000 and 40,000 take the rate for the 1st loan and multiply it times .8. Then take the rate for the 2nd loan and multiply it times .2. Then take those two numbers and add them up. The number you receive is your rough "weighted" interest rate. Then if you were quoted a rate on a single loan, compare the "weighted" average of the 80/20 deal to the single loan rate, and you can gain a sense of what is the most economical deal for you.

You can make a high level comparison using APR, assuming all loan terms are identical. For a truer analysis, you need to take a look at the interest rate and the closing costs and make some assumption on how long you will keep the mortgage. Then calculate the total cost of the mortgage over that period of time. If the different quotes have different terms, you are going to need to estimate the cost of some soft factors, such as what is not having a one-year prepay worth to you.

It is very important to compare terms of the loan when comparing rates. One company may be telling you that the rate they offer is a full percentage (1%) lower than another, but it may not be for the same loan. Many times a lower rate is offered on an adjustable rate mortgage, or for a 15 year term rather than 30 years- thus resulting in a higher payment even with a lower rate. This may or may not be the loan that is right for you. There are so many different morgage programs out there, so be sure to let your mortgage profesional know what your goals are with this home (ie. how long you plan on living there, if you plan on refinancing etc...) so that he or she can structure the program best fot for your needs.

Just choosing the lowest rate isn't always the best answer. High closing costs can outweigh a "good deal". One effective way to compare apples to apples is to compare the APR of your rate quotes. This will be found on the Truth In Lending disclosure and should be provided to you by law.

To get the best rates from more than one source be prepared to give alot of information...And even then, unless you do an appraisal with each one, you may not get an exact rate...Understanding what goes into an interest rate will help ease the confusion when you ask a professional broker what's the best rate you can get and he can't tell you...At least not without getting enough information...Be prepared to answer a series of questions in regard to your income and how it's documented, the approximate value of your home and what percentage of that value will you be borrowing, will you live in the home, would it be considered rural, what's your middle credit score of the 3 major bureaus, how well has your mortgage or rent been paid over the last year, any bankruptcies among a host of other questions, each a factor in determining an honorable interest rate...Anyone can throw one at you, but can they honor it...If they don't ask you many questions as I stated, expect whatever they tell you to change, and I bet not in your favor...So when you call, make sure you have enough time for a short discussion, be prepared to discuss your income and how it is doumented, your current home or the one you plan on purchasing and what your short and long term financial goals are so the loan officer can offer you a few of the best programs to help you achieve your goals...You won't be told what to do, you will be offered a choice if you provide enough information, the more you provide, the more options you will be presented with...The downside to this is that if you want to get fined tuned options from multiple brokers, you will have to provide the same information each time...Considering the importance of the loan, a little time should be well spent...

You may also want to ask for a Truth N' Lending statement or TIL. This will show the APR from the mortgage program being offered to you. Although the payment is NOT based on the APR, by comparing the TIL and GFE of different loan programs you will better be able to see the total costs of the entire loan(s) your are being offered.