Like the idea of a low minimum payment, but......

Don't like wondering how much your interest rate will adjust each month?

Do you want choices, but....

Want some security too?

Maybe you should check out the  hybrid option arm.  Many lenders have responded to the consumers desire for both choices and security by coming out with this  program.  There are a couple variations to it, but basically, here's how it works:

Your note rate or interest rate is based on several things like your credit score,  how much money you are putting down, or in the case of a refinance, how much equity you have in your home.  Once your note rate is determined, your minimum payment is going to be the note rate minus 3  AND is fixed for 3,5, or even 30 years.  This is a much simpler formula then adding a margin to an index that is constantly changing month to month, like in the regular option arm. 

You will still have your interest only option, which will not defer any interest, and your full principal and interest and 15 year options.  So, if your note rate is 6.75%* ( just an example) and your loan was for $250,000, then your 4 payment choices would look like this:

Minimum payment based on 3.75% (note rate minus 3)                 $781.25    

Interest only payment based on note rate of 6.75%                      $1406.25

Principal and interest payment based on note rate of 6.75%       $1621.50

Principal and interest payment over 15 years (6.75%)                  $2212.27

The best thing about this program is that these payments are fixed for 5 years.  No matter how much the index changes, these payments will always be the same.  This means that your deferred interest will always be the same as well.  That means more peace of mind for you.

By the way, for those of you that have a mortgage caluclator or are double checking the above numbers using an online mortgage calculator, you will notice that the minimum payment isn't working out the same. That's because the 3.75% payment is figured like an interest only payment--take the loan amount, multiply the 3.75%, then divide by 12.  But don't be confused, just because it's interest only, doesn't mean it's enough to pay all of your interest--to pay all of your interest due and not defer any interest you would have to pay choice number 2, the $1406.25.  If you pay the minimum payment, you will defer interest.

How much interest gets deferred when you pay the minimum payment?  The difference between the minimum payment and the interest only payment, or in this case, $625.00, is the amount that gets deferred each month.

Is the hybrid option arm right for you?  Consider these questions:

• Do you understand that you are using some of your equity each month that you make the minimum payment?
• Do you have an income that fluctuates, and like having choices each month of how much to pay on your mortgage?
• Do you want your payment choices to be the same each month, despite what the market does?
• Do you own investment property and want to maximize your monthly cash flow from rents? 
• Do you have 20% equity in the property so that you are not in danger of being "upside down" in your mortgage?

I would be happy to discuss whether this loan is a good choice for you and help you make an informed decision.  Please feel free to email or call me, or fill in the "ask a question" box below.

*The Fine print:  APR 6.91.  Your APR may be different depending on ltv, credit, doc type, and prepayment penalty.  Assumption is $250,000 loan amount, 80% ltv,  3 year prepayment penalty, full doc, 680 fico.  If minimum payment is made, negative amortization will occur, meaning your principal balance will increase.