Who Can Benefit From an Payment Option ARM - Self-employed borrowers with inconsistent income
Borrowers with inadequate or no retirement savings
Borrowers who want cash reserves for emergencies
Borrowers who need money to start or expand a business
Borrowers who need mortgage payments to be as small as possible
Borrowers who want to stop using high interest credit cards
Borrowers seeking financial flexibilityThe great thing about the Pay Option ARM is that it can benefit most people. Because of its flexiblity, it can be catered to meet the needs and goals of most people. I personally like the Pay Option ARM because it gives me more cash flow on my rental property and I have more money to invest in other properties or investments.
This loan can be great, however, when the market is hot! Often times you can get into an investment property, pay less than the current rent rates, and still gain value in the property. This is a great tool for leveraging cash when trying to buy multiple rental properties. Once the market turns, you can refinance the properties into traditional mortgages and cash out on the refinance to cover any deficiencies between your new mortgage payments and the rent you are collecting.
However, it really needs to be conveyed that this loan is NOT meant for everyone. The PayOption mortgage can have its down falls and if you are not the type of person who is very involved with their finances, you might want to consider a 3/1 or 5/1 Interest only ARM.
The pay option arm is a great alternative for those considering a Reverse Mortgae giving them a much lower payment option.
My estimate would be that in the state of California, somewhere near 70 per cent of homeowners could benefit from an Option ARM loan program. I base this on the fact that monthly cash flow is a problem as evidenced by the high credit card debt that some many households ar carrying.
In an area of high appreciation using an Option Arm on an investment property allowing it to have a positive cash flow while the property is being rented out and selling the rental after a period of time may be an advantageous way to use an Option ARM.
One of the negative effects of this mortgage can be the negative amortization of your mortgage over time. This, in simple terms, is adding debt to your property, and can happen if you always pay the lowest payment, as it is usually 1-3% interest rate. The difference between what your fully amortizing rate is, and this low rate, will be the debt added to your home.
One of the hottest mortgage programs on the market these days is the option arm mortgage. Alternatively you may have heard of option ARMS by the names "Pay Option ARM" "Payment Option ARM" "12 Month MAT" or "Pick-A-Payment Mortgage". And we've discovered that there are at the least 4 compelling reasons why smart and savvy borrowers are flocking to Option ARMS... these pick-a-pay loans give the borrower 4 different payment amounts to choose from every single month.
The First Payment Option is based on a start rate as low as 1%, sometimes even less, depending on your credit and a few other factors. Your Second Payment Option is usually on an interest only choice. Pay Option Three is generally a principal and interest payment choice amortized over 30 or 40 years depending on the program you select. Finally, for those times when you have extra money available and you want to pay down your principal and build equity faster, the fourth choice is a pay option based on the 15 year amortized payment to pricipal and interest. In Summary, an option arm provides you with flexible options every month, which help to manage your cash flow and monthly budget with more control. And you can get a lot more house for your money, or free up that cash flow to start your own business or make investments.
The best way to put a pay option arm mortgage to work for you is to talk with one of our experienced option arm experts who will design a personalized program just for you based on your own individual or your family's goals, income, monthly bills and future housing or investment property plans.
Pay Option ARMs are great for many borrowers. Another common situation is borrowers who own a rental property. The flexibility and minimum payments can be used to maximize cash flow from the property and or to off set additional expenses such as repairs.
Pay Option ARM is also referred to as a Pick a Payment loan. It gives the borrower the option to make one of four payment types every month, (1) minimum payment, (2) interest only payment, (3)payment based on 30 year amortizations, and (4) payment based on 15 year amortizations.
Flex Pay Option Loans - Of the many loan programs available the most unique is what is called the Flex Pay Option Loan. The loan has flexible payment options with start rates as low as 1%.
With these programs you can always pay at a 30 year rate if you want. The program gives you the most flexibility. If you need cashflow one month then it's there. The next month you can always pay towards principle if you want.
Flex Pay Option loans can negatively amortize. In other words, the principal amount (initial loan amount) may increase over time.
These loans are not only good for self employed but also for new professionals who have entered into high paying fields that will see a significant increase in income over the next five years. This give them the ability to buy a higher end home with the lower payment and then paying into principal as their income increases.
There are several advantages of a Pay Option loan but one of the biggest is cash flow control. In high cost of living areas such as California and the northeast, cash flow is a problem for many homeowners. The cash flow releif from a Pay Option loan can often allow homeowners to avoid other high interest debt like credit cards.
With many option ARM programs your minimum payment will increase 7.5% per year until the loan is recast.
Flex Pay Option Loans are available for purchases or refinance, primary residences or income properties as well as multifamily 5 plus unit apartments.
The different pay options vary from an interest only payment to a 40 year amortized payment and everything in between.
These loans work great for investors because they have flexibility each month with their payment.
These loans are also great for people who have variable income such as people who are self-employed, or people who earn a commission.
There are several different indices that your payment rate is based upon. The Libor, COFI, and the MTA index. That payment also has a margin that will depend on several things such as if it is a cash-out refinance, owner occupied or investment property among other things. The index and margin are added together for your monthly rate.
People use these types of loans for different reasons. For investors - if the home is in a hot area where appreciation is high the investor can cash flow because of the lower payments associated with this typ of loan and still build equity on the appreciation each year.
Flex Pay Option loans are also called commonly Option ARMs. There are many types of Flex Pay-Option ARM programs out there and all suit different types of needs and preferences. The person looking into a Flex Pay Option ARM should be fully aware of all the features of the product so it can be used wisely without problems. Too many people take on these products without fully understanding their benefits and features. The home owner that considers these types of loans should always be willing to take advantage of the minimum payment feature that reduces the requirement of monthly mortgage payment obligation. One who likes only the interest-only, 30yr and 15yr full payment options, but not the minimum payment are ususally not the best candidates for the product. They would be better suited for a fixed period ARM or fixed rate mortgage.
