What is the Option Arm?

The Option Arm is one of the worlds smartest adjustable rate mortgage. Now I know what you're thinking. "I don't want one of those adjustable mortgages." or "I've heard of how I can get screwed on one of those types of mortgages". These kinds of statements are directed tward adjustable margin loans, not all adjustable rate mortgages. This loan has a FIXED margin, and an adjustable index. The margin is FIXED for the term of the loan at usually around 2.850% to cover the overhead at the bank. The Index for this loan is the MTA. The MTA is a 12-month average of the annual yields on actively traded U.S. Treasury Securities. This process creates an index that is far less volatile than other adjustable-rate indices.

The way we figure your Interest Rate on the Option Arm is MARGIN + INDEX = RATE.

Plus we give you at your option to start payment at an introductory payment rate of 1.750%

Now I'm sure your curious, how much can my payment go up? The Option Arm has a feature which we call the Payment Protection Program. What this feature does is limit the amount you payment can change, which is 7.5% of your payment which converts to .75% in interest rate. Not only do you have a yearly cap on your payment but you have a cap for the life of the loan which is 8.95%.

And it gets better, the most important items to most consumers regarding their home loans are: How much will my mortgage cost monthly?, and How much will this loan cost me over the full period of the loan? The Option Arm solves these issues as well. Let's start at the monthly payment. The monthly payment is started at a low 1.75% to allow you the cash flow to either pay off high interest debt, put well deserved cash in you bank accounts, allow you to reinvest it into your retirement account, or even allow you to make your current mortgage payment on this loan to dramatically reduce your principle balance. (See: What The Banks Don't Want You to Know!). Now, what happens near the end of the loan? This is a feature that is even more important. If you have read What the Banks Don't Want to you to Know! you realize the situation that the banks put you in. If you add up all the payments on this loan and compare it to a fixed rate loan currently available, you can see the difference. On a $100,000 dollar loan you can save up to $40,000 dollars or more over the course of this Option Arm compared to a conventional fixed rate mortgage. And, by making the payment of the fixed rate mortgage on the Option Arm, you can even reduce the term of the loan, and save up to 7 years plus have your house PAID OFF!!

Plus, You have 3 payment options!!!
1. Pay the minimum amount (Interest Only)
2. Pay the Full Principal and Interest
3. Pay any amount Over the Minimum Due

At last, a mortgage that puts you in control of you monthly payments!!!
Each month, an easy-to-read loan statement lets you choose the payment amount that best suits your financial situation: pay the minimum amount to free up funds for other uses, or make larger payments for faster equity build-up. It's ideal if you income fluctuates or steadily increases over the years.

The Minimum Payment
Pay the minimum amount due, which may result in interest being deferred. The initial "Start Rate" is a full Principle and Interest rate and payment for the first month of the loan. After the 1st month, this payment will now be called the "Minimum payment". The purpose of this low Starting Rate is to "establish" what the minimum payment will be for the rest of the first year. You will be allowed to continue making the minimum payment for the next 11 months, but you will not be paying all the interest and principal due every month, hence you will be acquiring deferred interest (negative amortization). In month number two, the interest rate adjusts to what is known as the "Fully Indexed" Rate. If you continue just making Minimum Payments for the next 11 months, beginning in year 2, the bank will take your 1st years minimum payment up via the 7.5% payment cap. If you still continue to make only the minimum payment, the bank will continue to increase your minimum payment every year (on the loans anniversary date) until you pay off all of your deferred interest and principal. Once all of your deferred interest and principal is paid off, the minimum payment option will disappear as you will now be making the fully indexed payment. The minimum payment option like the other two monthly payment options will pay your mortgage off in 30 years or less.

The Full Principal and Interest Payment
Pay the full principal and interest or fully "Indexed Rate" amount to fully amortize your loan according to the original term. The fully Indexed Rate, is the monthly Principal and Interest due. It is achieved by adding the Margin to the current MTA index. The Margin never changes for the life of your mortgage. The Index changes every month after the initial Starting Rate period. If you always pay the fully indexed rate, you will never have deferred interest and the 7.5% payment increases will not come into play.

Making payments over the Full Principal and Interest Payment
For faster equity build-up, quicker payoff and substantial interest savings, choose the largest monthly payment option. Beat the bank at its own game! On a regular 30 year fixed loan, the first seven years almost all of your payments go toward interest. You barely touch your principal! And most people move on an average every seven years, so the banks make out like bandits. With the Option Arm, you keep more of your own money to put in your bank account, not theirs! When you pay more than the required amounts, you pay off principal that you otherwise would be paying interest for years to come, and at the same time cut months even years off of the term of the loan. The Option is yours!

 

How can I Qualify for this Loan?
Qualifying is easy. If you are Self Employed the Option Arm is perfect. It is a non-income verifying loan, which means you don't need to show tax returns or year-to-date P&L's. All you need is about two years self employment and 20% equity in your home and you're qualified. Credit Problems? Even if you have less than perfect credit, you may be able to get an Option Arm. If you're credit score is A minus but you've had clean credit for the last year, you may qualify for a 1.75% Option Arm.

The Option Arm is a great cash flow loan. For self employed and commissioned borrowers, it allows a choice of payments as monthly income rises or falls. For all others, it allows more room in the monthly budget, as much room as you could want!

Ok, Lets summarize the advantages of the Option Arm
1. Stable Index
2. Fixed Margin
3. Minimum Paymnet Size
4. Flexible Payment Options
5. Overall Savings ability
6. Easy Qualifying

It's the last home loan you'll ever need
Allied Home Mortgage Capital, Corp. is one of the few brokers in the state offering a loan that can cut your payments in half, beat the banks' at their own game, build your savings and net worth, and give you a choice of payments!

The following are comparisons of Option Arm vs. a FHA Fixed Rate Product on a $100,000 dollar loan

Minimum Payment Option Comparison (.pdf)
Minimum Payment Option Chart (.pdf)

Principal and Interest Payment Option Comparison (.pdf)
Principal and Interest Payment Option Chart (.pdf)

Making the 30 Year FHA payment on the Option Arm Comparison (.pdf)
Making the 30 Year FHA payment on the Option Arm Chart (.pdf)