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2% pay option MTA ARM
Moderators: Mortgage-X

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   Types of Loan Programs-> Pay Option ARM, Pick-a-Payment, Cash Flow LoanMessage format
Posted 10/20/2005 3:10 AM (#498)
Subject: 2% pay option MTA ARM
We are interested in re-fi cash out at $444,000 to a pay option arm note MTA index. It has a 3.4% margin. We would not pay just the minimum payment or interest only most of the time. My husband works off commission and the lower payments would be beneficial only occasionally. The pay options are:

(1) minimum payment
(2) interest only
(3) fully amortized payment
(4) 15 year amortized payment

Another company's LO is telling us that this is a terrible loan and that in the first few months we will lose thousands in equity. She said that this is close to predatory lending to offer this type of pick a pay loan and they hardly do it anymore. She is saying that if I pay anything but the 15 year amortized payment I will be in neg. amortization immediately. She wants us to go with her 6.9% ARM-2 year fixed with a 3 year pre-pay. The payments would be $3400.00 & change. I don't know what to think. Can anyone offer me some advice?

My e-mail is if you prefer to reply in email. Thanks!
Posted 11/9/2005 9:17 AM (#548 - in reply to #498)
Subject: RE: 2% pay option MTA ARM
The only way you have a neg amort is if you choose to pay the min payment only, the interest only option pays the full interest and the P/I option pays bothe interest and prin.
Florida Keys Loan Of
Posted 11/16/2005 9:37 PM (#564 - in reply to #498)
Subject: RE: 2% pay option MTA ARM
Dear Malenroh,

First of all, I always recommend taking the advise of your local Mortgage Broker. If he or she is experienced in the area, they can give you valuable local insight as to how your property's potential growth will be affected by the type of loan you choose. For example, in the Florida Keys, the option ARM is a valuable tool because the potential for a 1-5% negative amortization per year is offset by a 10-40% appreciation rate per year.

Having said all of that, I don't think that the option arm is predatory either. It's just the right loan for the right scenario. My advise to you is that, if you are getting an option ARM because of it's flexible payment feature, you might want to re-think that. I know that your intention is to pay only the 30 and/or 15 year amortizing options and, I have no doubt that you have that intention and discipline to follow-through... but you might find yourself surprised how many other minor "emergencies" start to arise when you don't absolutely have to make that larger payment (especially if you have kids ages 16-30 ;-).

A good alternative I might suggestion would be an adjustable rate mortgage (ARM) with one of the longer fixed periods (i.e.:, 5/1 ARM, 7/1 ARM, 10/1 ARM, etc) or even 30 year fixed. Add to that loan an interest first option (usually available in 2, 5 or 10 year options) (aka Interest Only loan). The advantage to this would be to allow you the flexibility to only make interest payments and during those times when you were making more money, make higher payments. You maximum exposure on any given month would be the amount of interest AND, you would not be subjected to the volatility of the market's influence on your monthly interest accrued.

Good Luck!

Paul Christian
Posted 3/7/2007 6:46 PM (#1400 - in reply to #498)
Subject: RE: 2% pay option MTA ARM
I would suggest that you stay off of the MTA index and use a more conservative index such as COSI in order to keep your risk level allot more under control. This is what I advise my clients in order to gain trust. I deal with over 200 banks so your options are endless. If you would like to discuss this further please contact me. I will be more than happy to inform you of all of your options.
PS That loan is bogus. 2 yr with a three year pre pay. No Way. That is a formula for foreclosure.

Warmest Regards,

Paul M. Karsko
Posted 3/19/2007 1:39 AM (#1415 - in reply to #498)
Subject: RE: 2% pay option MTA ARM
Posts: 92
Location: Las Vegas
Hello Malenroh,

The L.O who is advising you to do a 2 yr arm is a dumba$$ and is not telling you the correct information. While i have many issues with the Pay-option ARM loans out there, to do what that L.O. is recommending is stupid. If you are a sub-prime borrower then I might expect some one to offer you a 2 yr loan, but assuming you aren't then thats just a wrong thing to do.

If you absolutely sure that an option ARM is the right loan for you, then so be it. My recommendation would be to take advantage of a new type of option arm on the market which has a fixed interest rate instead of adjustable rate, while still giving you all the same type of payment options. My company refers to this loan as a "Payment Advantage Loan."

If at all possible I would really like you spend the least amount of money on interest as you can. To do that you would need to go away from the payoption loans into a normal Fixed ARM. 5yr,7yr, or 10 year loans will be available and will give some very good interest rates.

John I
Posted 4/9/2007 9:31 PM (#1475 - in reply to #498)
Subject: RE: 2% pay option MTA ARM
Every reply so far has it's valid points, and I agree with most of the statements made. The most important thing for you to do, though, is have someone evaluate your entire financial situation. Every loan scenerio, and every client 's risk tolerance, has its corresponding "correct fit" loan products. You should always learn about several loan options that fit your specific needs then make your own informed decision.. I no longer lend in Florida, but I would be glad to answer any of your questions, as I have many years in the business, and extensive knowlege of all the programs discussed so far in your replies.
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