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Help !!! Trouble deciding !!! Is this a good deal?
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tinhanh
Posted 5/24/2007 6:29 PM (#1505)
Subject: Help !!! Trouble deciding !!! Is this a good deal?
I am currently have a 30 years fixed mortgage for $630,000 at 6.375%. My wife and I bought our house 03/06 and it was appraised at $810,000. Our monthly payment is $3930.00 . Both my wife and I have excellent credit 740/792. We are interesting in the new concept in lowering our monthly payment and create a safenet + investment. We were recently got offered by a lender a 5 year fixed payment option mortgage for $630,000 with a start rate of 1.25%. The working rate is 5.45% calculating with index 3.0 and margin 2.45%. They said the index is based on MTA index. The loan with be fixed for 5 yrs with a monthly minimum payment of $2174 with option to pay interest only or interest and principal. They charged me a $3000 closing cost. My wife and I have stable job and stable income roughly $90,000/yr. We are not in a hurry to refinance but do want to increase our financial situation. First of all, I wonder is my lender making any thing on this deal? If yes, how much??? And is this seem like a good deal or is there other option better? And if this is a good deal? In term of payment option, which payment should I pay? Pay minimum, invest or save the rest? Pay interest only, and invest the rest? Or pay interest and principal. Thanks in advance for your respond. Eric!
JohnI
Posted 5/25/2007 12:25 AM (#1506 - in reply to #1505)
Subject: RE: Help !!! Trouble deciding !!! Is this a good deal?
Posts: 92
Location: Las Vegas
Hello Eric,

Let me start by saying that I do not believe that you going to get an interest rate of 5.45% with closing costs of $3000. The math just doesn't work out in my mind. The MTA index is not at 3% right now, so how can you have that true interest rate?

Now as to is this the right loan for you. Do you have a specific plan for putting to work the money you are not spending on your mortgage any longer? If you have a specific plan that will yield you more than it costs you then I say okay. It's an aggressive move on your part, but that is not always bad.

Keep your eyes open my friend.

Best,
John I
tinhanh
Posted 5/25/2007 3:43 PM (#1507 - in reply to #1505)
Subject: RE: Help !!! Trouble deciding !!! Is this a good deal?
Hi John,
Thank you for the prompt response. I've been doing a my own research and I too did not believe what I was told is true. My loan officer keeps insisting that it is a legitimate deal and he even sent me an adandum to summarize the condition of the loan. At this point, I still don't know what to think. And to answer your second question, "Yes," I did have and already set up an insurance investment account that would earn me 8 - 10% return on my investment. Here is what my loan officer sent me:
Mr. Eric,

This is a 5 year fixed program based on the MTA index.

This has a 5 year fixed payment rate of 4.141 or 1.5 amortized over 30 yrs, where you’re paying only interest and no principal. This gives you a 5 year fixed payment of $2174 and always has the option to pay above and beyond the minimum payment.

As long as you refinance with our company within the first 3-5 yrs of the loan, there is no closing cost to you.

As discussed, the max working rate that you will be paying is a 5.45% for the initial 5 years. This rate includes a backloaded interest portion of 1.309%.

At the end of the initial 5 years, you will go adjustable with the market. At that point you will be paying down your principal and interest along with market rates.

?????????????? Any comments?
JohnI
Posted 5/25/2007 8:41 PM (#1508 - in reply to #1507)
Subject: RE: Help !!! Trouble deciding !!! Is this a good deal?
Posts: 92
Location: Las Vegas
Aha... a little more has been revealed.

Let me start by saying that it "feels" to me that the letter given to you from your lender is misleading. I dont know that its deliberate, but when it takes some work for me to figure out what he/she is talking about, then its not fair to think that someone who doesnt do this for a living has a good chance of truly understanding what they are getting into.

Here are some notes.

"This is a 5 year fixed program based on the MTA index" Fine... nothing wrong there.

"This has a 5 year fixed payment rate of 4.141 or 1.5 amortized over 30 yrs, where you’re paying only interest and no principal. This gives you a 5 year fixed payment of $2174 and always has the option to pay above and beyond the minimum payment. "
TRANSLATION: Your MINIMUM monthly payment will be calculated like this.... $630,000 @ 1.5% over 30 years or $630,000 x 4.141% / 12. Either way yields your payment of $2174. (Why do they need to give you two ways to calculate the same number? Are they just throwing alot of numbers at you to confuse things?)

"As long as you refinance with our company within the first 3-5 yrs of the loan, there is no closing cost to you. "
TRANSLATION: To me this says that after you do this loan, if you come to them within 3-5 years they will do your next refinance with no closing costs to you. That does not mean that this loan has no closing costs. (Seems kinda tricky to me. Are they trying to make you think that this loan is closing cost free?)

And lastly... and I think the most confusing/decieving thing they say is.....
"As discussed, the max working rate that you will be paying is a 5.45% for the initial 5 years. This rate includes a backloaded interest portion of 1.309%.
TRANSLATION: All this says is that as during the first 5 years of this loan is that the highest your MINIMUM PAYMENT will get is $630,000 x 5.45% / 12 = $2,862.91. Please note that this is only your minimum payment rate and not the TRUE INTEREST Rate of the loan. In reality your interest rate will be closer to 7% or higher. (Its my opinion that the way this was written to you was deliberately done to be confusing and misleading to you.)

So will all that in mind, if your expected rate of return is 8-10% and the true cost of your loan is 7%, then i would say this is not the right move for you. You are not getting enough "Bang for your Buck".

If I have judged this lender too harshly or misinterpreted anything above, I am more than willing to listen to their response to what I have said and see if I am wrong.

Best,
John I



tinhanh
Posted 5/26/2007 4:25 AM (#1509 - in reply to #1505)
Subject: RE: Help !!! Trouble deciding !!! Is this a good deal?
Hi John,

Thanks for your advice. It looks like my loan might be the "Hybrid Option Arm" loan. I'll reconfirm with my loan officer about what you told me, and post the result later.

Warmly,
Eric
sithburns
Posted 12/10/2007 2:59 PM (#1673 - in reply to #1505)
Subject: RE: Help !!! Trouble deciding !!! Is this a good deal?
Posts: 13
This loan product is an MTA Hybrid Option Arm. The key to the option is what the qualifying rate is. If your qualify rate is 7% and your introductory rate is 5%, you will basically be negative the difference between the 5 and 7% every month. Your loan will be increasing with each monthly payment.

Be VERY VERY careful with these loans. They are a great tool for investors that are going to be holding a property short term or that have lots of equity and know what they are getting into. The qualifying rate will generally be a bit higher than a normal fixed or Arm rate would be, but this is a price many investors are willing to pay to have the option of making a smaller minimum payment once in a while if something comes up.

They Hybrid is a bit safer and generally more sound product than the traditional (If there is such a thing when talking about exotic loan products) MTA or LIBOR Option Arms.

I hope you have already had a conversation with your current loan officer about your intentions and needs with the financing they are tryign to put you into.

P.S. The Options Arms and Hybrid Option Arms sold so well because brokers get paid alot more on those types of loans then they do on more traditional financing. Ask how much YSP you are paying the broker for this loan program.
starfox
Posted 7/1/2008 12:04 AM (#1780 - in reply to #1505)
Subject: RE: Help !!! Trouble deciding !!! Is this a good deal?
Posts: 10
It does not sdound like you are getting all of the information. be sure to ask a lot of questions to know for sure what youare getting.
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