Is a low fico option arm, 100% option arm low fico or a 1 percent mortgage option arm right for you?
To understand how
these much misunderstood mortgages work you really need to
understand a few basics terms related to adjustable rate
mortgages.
The
MTA-Index (Month Treasury Average) is based on the average
annual monthly yields of U.S. Treasury Securities, (T-Bill)
adjusted to a constant maturity of one year, as made available
by the Federal Reserve. The MTA-Index is determined by adding
together the monthly yields for the most recent 12 months and
dividing by 12. Because it’s an average, higher yields in some
months are offset by lower yields in others. This Index has
averaged below 5% over the past 14 years
(see
History of the MTA.)
If you add the current monthly MTA-Index to a
Margin
and it will equal the current monthly "fully-Indexed" Rate;
the Margin never changes. Over the last
fourteen (14) years, with the PRIME rate
increasing then decreasing the MTA-Index
has averaged below
5%.
Therefore, if you're worried about the Life Cap (Index
+ Margin) going up to its max you need to understand how the
MTA moves. i.e., if you had a
2.0% Margin, the MTA-Index
would be capped at 7.95%, or 9.95% - 2.0% = 7.95%. Remember,
this Index has averaged below
5% over the last 14 years. This low average is one
of the main reasons why none of our past customers have
ever needed to refinance out of
this mortgage program. Because when Fixed-Rates start
to drop so does the MTA. Also, when the Fixed-Rates start to
move higher, the MTA-Index moves slightly higher, and very
slowly.
The MTA mortgage is one of the slowest
moving Indexes
either in the US or Europe (*COFI would be the slowest moving)
1.
"Minimum payments"
for some of the lowest monthly payments offered in the USA.
2.
"Interest-only"
payment Option.
3.
"Fully Indexed" (Index + Margin) payment Option:
4.
"15
yr." payment amortization Option.
5.
Pay any amount over the "Minimum" pmt. (This option
is always left blank on your monthly statement.)
Whether you choose to make only the "Minimum payments" or the "full P.I.
payments", your mortgage will be paid off in 30 or less.
The MTA-Index is one of the safest of all ARM
mortgages offered today.
Assured Approval recommends the MTA program as the number 1 choice in a mortgage
index offered today. The COFI mortgage would be our 2nd choice. Next would
come either the COSI or CODI with the LIBOR following. All four programs work
the same way, i.e., 5 different monthly payment options, a yearly 7.5% payment
cap protection, a Life Cap, a fixed Margin, and a slow moving monthly Index, but
there are some differences:
-
History has proven that the MTA mortgage has
offered a lower fully-indexed Rate (Index + Margin) vs. the COFI, COSI and
CODI's fully-indexed Rate over the past 10-15 years.
-
Currently, the MTA fully-indexed Rate is lower
than the COFI, COSI and CODI.
-
MTA and COFI typically offer a lower life cap
vs. the COSI/CODI's life cap.
-
MTA offers the lowest Margins (this is Key.)
-
MTA typically offers a lower "Starting Rate"
vs. the COFI.
You are allowed to order an Appraisal with any
licensed appraiser in your state with the COSI and CODI the investor orders
their own appraisal.
The fact that most MTA loans are never sold
(this means the lender has confidence the Index will never "spike-up" and
greatly affect your monthly payment), and because this Index is one
of the safest and slowest moving of all indexes used for home mortgages, yearly
7.5% payment caps, low fixed Margins, low Life
Caps, and a Minimum payment option, is why we recommend the MTA loan and have
one on our own homes and those of our family members.
The benefits of this Adjustable Rate Mortgage is you have the Option to start
off with lower mortgage payments (Minimum pmt. option.) These lower payments
could help you to stay out of future credit card debt, or get you out of
existing credit card. If you have no debt, you could use the extra cash-flow to
buy things for your new house (without having to use credit cards.) Or the lower
payments will help you re-build your savings portfolio for your children's
college fund or your family's future retirement. Or, if you lose your job and
need to take a few months to go back to school for re-training, etc....
The best way to get a visual of the potential "increased" cash-flow of the MTA
program vs. a Fixed-Rate is via our Excel Spreadsheet (click here). What
you'll find out, is the difference between a "lower Interest Rate" vs. obtaining
a "lower payment." i.e., with the MTA Option ARM, you'll have at least 5
different ways to make a monthly payment. With a Fixed-Rate, you'd only have
two (P.I. and the ability to pay more than the P.I.) Hence, with Option for
lower payments, you can leverage your future house payments in a more beneficial
way.
The MTA "Minimum"
payment"
is guaranteed for the first five (5) years of the loan not to move higher or
lower than 7.5% of the prior years "minimum pmt." i.e., $1000 yr.1 x 7.5% =
$1075 for yr.2, etc..
If you choose to pay only the "Minimum payments"
and you saved and invested the difference between not making the MTA's monthly
Principal and Interest payment (Index + Margin) or the Fixed-Rate payment and
invested this extra cash into a ultra safe balanced portfolio, this savings
could potentially double every 7.2 years if you earned at least 10%. If you
earned just 5%, it would double every 14.4 years, etc... Therefore, we believe
that you could actually pay your MTA mortgage off faster by making only the
"Minimum payments" (IF) you saved and invested just the first 5 year difference
in monthly payments into an ultra safe Mutual Fund or better yet the DOW 30 or
S&P Indexed Funds. If you were disciplined enough not to touch the initial 5
years savings and re-invested the dividends automatically every month, this
money could grow fast enough (if you could earn at least 8% annually) to allow
you to pay your mortgage off in about 20 to 25 years (by adding a one time extra
pmt. in year 20 to 25), and still have savings left over.
No matter which Payment Option you choose, your loan will still be paid-off in
30 years or less.
The risk of obtaining this ARM, is the possibility that your future Payments and
Interest Rate could move higher then the Fixed Rate you could have chosen.
However, when the future Fixed Rates eventually start to move back down, the MTA
Index will also start to slowly inch back down. Therefore, you need to keep in
mind it's the over-all "average" of the Index + Margin for the last 13, 10, 5
and 1year. With the MTA ARM, you might not need to refinance again. This could
also be true if you received your Fixed Rate at an historic low, but what about
all the Folks that received their Fixed Rate in 1990, or 1995, or 2001, they
thought the then offered Fixed Rate was a great deal. Nevertheless, all of these
Folks would have needed to refinance several times just to get down to a 5% or
6% range today, by spending much monies in closing cost and always going back to
a 30 year payoff. However, if you had obtained this MTA mortgage in the early
90's, today, you'd have a Interest Rate in the three (3) percentage range
(without ever having to refinance.)
Most folks that I've put in these ARM's since 1991 till today, have a
Fully-Indexed Rate (Index + Margin) in the 3% - 4% range; this includes Jumbo
loans. We personally believe that the MTA ARM
is a better loan for my family then any Fixed Rate (even at these historic
Fixed-Rate lows) mortgage because of the "Minimum payment" option which allows
us to increase our monthly "cash-flow" - if we need to. We also understand how
and why the MTA Index moves along with its safety caps, i.e., fixed Margin and
7.5% yearly Payment Caps. We are not worried about having our future payments
go so high that we could not afford them, thus putting us in jeopardy of losing
our house. Many of my potential clients have already heard a little bit about
these mortgages, however have not fully understood them. Many have been told to
stay away from "negative amortizing" (balance can go higher if you make the
"Minimum" pmt.) loans. But once they understand that a Home Equity mortgage
(2nd mtg.) can also produce negative amortization (mortgage balance increases)
they start to look at the "Minimum" payment option in a new light.
We
believe the MTA program to be the best mortgage offered today in the US.
However, we are not saying this mortgage program is for everyone. We are
teaching the difference between lower "payments" vs. lower "Interest Rates."
Therefore, for the folks that have no or little monthly debt (credit cards, car
pmts. etc.), excellent savings portfolios, good job stability, and good monthly
cash-flow, a "Fixed-Rate" may be appropriate.
In conclusion, it might take some time to read and
digest all this information; therefore you might want to bookmark this page.
To see if you qualify for the MTA mortgage just fill out our
Loan
Application.
We'll fax you back a Good Faith Estimate of your proposed fees and an example of
what your future monthly payments would look like. This will not obligate you
in any way as we take no up front fees.
Please request a free quote and one of our licensed
professional mortgage consultants will get back to you within 2 - 24hrs, or
possibly sooner. We will answer all of your questions and let you know
what your options are, there is never any pressure to move forward and you can
cancel at anytime, no cost, no obligation. Do it now while it's still
fresh in your mind and rates are still low.
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