I need to know how best to describe the Pay Option plan. How would I sell it to someone who knows nothing about the business?
Thank you for your question. I am assuming you are a loan officer who is new to the business. Welcome aboard! The first advice I would give to you along with any other loan officer would be to never advise a client on a program you are unfamiliar with. I am happy you are taking the time to learn about new programs rather than just be a salesman.
The Pay Option Arm program has many benefits for the right client. However, the Pay Option Arm is not for everyone. The typical client for the pay option arm is someone who is willing to take the time to learn about the benefits of the program. A Pay Option Arm client is often self-employed and their income can vary from month to month. The Pay Option Arm program will allow a client to pay one of four payment
options each month. The first payment is based off of a minimum due payment. Most lenders will offer a 1% minimum payment. e.g. $200,000 at 1% interest rate would yield a payment of $643.28. Then second payment would be an interest only payment. The interest only payment is based on the index plus the margin.
The margin is determined by the client's credit, ltv, occupancy, etc. The client also has a choice of indexes. The two most popular are the MTA (monthly treasury average) and the COFI (cost of funds index). Today's
MTA is at 0.944. If your client ends up with a 3% margin, the interest only payment is based off of 3.944% (0.944 + 3), e.g. $200,000 at 3.944% interest rate would yield a payment of $657.33. The two final payment options would be either a 30 year fixed payment or a 15 year fixed payment. The fixed payments are both based off of the index plus the margin. From our example the 30 year
fixed payment at $200,000 would be $948.38 and the 15 year fixed payment would be $1,473.77. You can see how these different payment options would benefit a client who has income that fluctuates from month to month. This program has many benefits over such programs as the 5 year interest only program.