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Old 09-28-2005, 11:07 AM
Posts: n/a
Default Payment option ARM

A question was posed in the yahoo group message board
and since my company sells these product i will
attempt to impart my knowledge.

There has been a lot of buzz in the Real Estate Sector
about a new Hybrid product called the Option Arm.
Many people even some in the mortgage business either
over simplify or make it more complicated than really
is. You may have seen billboard advertising touting
rates any where from 1% to 1.95 % as a teaser to get
your attention.

I will attempt to explain this in plain English.
These are Adjustable rate mortgages tied to either the
Cost of Fund Index (COFI) or the 12 Month Treasury
Average. My company Commerce Financial Group favors
the COFI because it has been slower to react to market
conditions than other indices.

Each month you will have 4 options:

OPTION A- Minimum Payment This option is similar to
making the minimum payment on your credit card. This
option will most likely not pay off your entire
interest payment due so you will have deferred

OPTION B- Interest only Payment This option allows
you to pay only the interest you accrued last month.
It will not reduce your outstanding mortgage balance,
but it will not add any deferred interest to your
mortgage balance.

OPTION C- 30 year Payment This option allows you to
make a payment as if you were going to pay off the
loan on a 30-year amortization level

OPTION D- 15 year Payment If you have more than 15
years left on your loan they will calculate a payment
as if you were on a 15-year amortization schedule.

Your option mortgage will be assigned a margin, which
will be fixed, and your indices will be added to that
margin. Your next year’s payment will not be higher/
lower than 7.5% of the previous years payment. At YEAR
5 if during the previous years you choose to just make
the minimum payment and deferred interest is added to
your principle balance, the bank may choose to recast
your payment to pay down your principle and the 7.5%
payment cap will not be in effect. To protect the
consumer you will have an interest rate cap, which
will state the highest your interest rate may rise to.

If you have any questions please email me or call me at Commerce
Financial Group 1-877-454-8100 ext. 3900 ( John


John DeRoma

> Ed Craine <> wrote:
> There are a number of lenders offering this type of
> loan program. The
> payment rate starts at 1% for the first year and
> then adjusts upward
> each year until the payment rate meets the note
> rate. Meanwhile, the
> note rate which is 1% for the first month then
> becomes adjusted to a new
> rate determined by adding a margin (lender's profit
> essentially) to an
> index (a cost of funds).
> This is a simple explanation, there are many, many
> more details. You
> need a good, reputable loan agent to advise you when
> you look at this
> type of loan.
> By the way, the 1% start rate is only offered on
> owner occupied and
> second homes.
> Good luck!
> Ed Craine
> Smith-Craine Finance
> 2645 Ocean Ave. #202
> San Francisco, CA 94132
> 415-406-2330 voice
> 415-406-2340 fax
> -----Original Message-----
> From: Crystal Investment Property
> []
> Sent: Wednesday, March 09, 2005 4:53 PM
> To:;
> Subject: [IncomeProperties] Residential Loan Program
> Anyone have information/feedback on a residential
> loan program promising
> Jumbo sized loans for re-fi's at a current rate of
> 1% interest over a 30
> year term, adjustable and tied to the bank's savings
> program rates?
> Thanks - Michelle Kennedy
> [Non-text portions of this message have been
> removed]
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