| Have you seen the ads everywhere for "1% | | | | years of a loan, after which the loan reverts back to a |
| Mortgage Loans" - offers that show how you can | | | | regular adjustable loan. You cant make minimum |
| chop you monthly payment in half? | | | | payments forever. Some loans come with a |
| This type of loan has become very popular recently, | | | | conversion option to change into a fixed rate loan at |
| particularly in places with high and escalating real | | | | some period. Some people refinance around year 3 to |
| estate values where the loan can allow people to buy | | | | get back to the lower minimum payment levels. |
| or keep expensive properties that may otherwise be | | | | There can also be a reset to a regular loan if the loan |
| out of their price range. | | | | size increases too much relative to the value of the |
| The 1% loan is a loan that has to be understood first | | | | property. This means that making minimum payments |
| because it can be good or bad, depending on your | | | | is no longer an option. |
| circumstances and goals. | | | | Interest Rate on 1% Option Loans |
| The 1% mortgage rate is usually an introductory rate | | | | What is the interest rate on this type of loan? Usually it |
| (the APR or annual percentage rate is usually much | | | | adjusts on a monthly basis and is the sum of an |
| higher). | | | | interest rate index plus the margin which is the banks |
| The 1% interest rate may only be for the first month. | | | | profits. The interest rate index can be based on |
| The appeal of this type of loan is that it typically allows | | | | different published indexes, such as the LIBOR, COSI, |
| you to make a choice each month about how much | | | | or CODI index. Some of these indexes change value |
| you want to pay for your mortgage . | | | | faster than others. These loans also usually come with |
| Payment Choices For 1% Loans | | | | a lifetime cap on the interest rate, so the upside rate |
| These choices each month are usually:a minimum | | | | risk is clearly defined. |
| payment (usually less than the interest-only level)an | | | | Is The 1% Loan Right For You? |
| interest-only levela 15 year amortization levela 30 year | | | | If your loan continues to increase, and the value of |
| amortization | | | | your property drops, then you can end up owing more |
| For example, a 1% minimum option loan on a $400,000 | | | | on the property than the house is worth. This loan is |
| loan with a 30 year term can have four different initial | | | | not for everyone. |
| payment levels:the minimum payment of $1,287,an | | | | If you have lots of equity in your property and don't |
| interest-only payment of $1,649,a 30 year payment of | | | | mind you loan size going up, you may consider this |
| $2,134,a 15 year payment of $3,152. | | | | loan. Often people have found that gains in property |
| When you get your bill, you can decide that month | | | | values are higher than the increase in their loan size. |
| how much you pay. | | | | For example, a customer may start the year with a |
| Quick Features Of 1% Loan | | | | loan of $300,000 on a $400,000 property and may |
| Here is the first catch: when you make the minimum | | | | end the year with a $310,000 loan on a $450,000 |
| payment, any amount short of the interest-only | | | | property. The borrowers equity in the home has still |
| payment is added onto the principal of the loan. For | | | | increased, despite the increase in loan amount. |
| example, if:the minimum payment is $1,200 per | | | | The 1% loan often only goes up to the first 80% of the |
| monthinterest only payment is $1,500 per monthyou | | | | value of the property, after which if an additional loan is |
| are increasing the size of your loan by $300 if you | | | | necessary it is usually an equity line at a higher rate. |
| only pay the $1,200 minimum payment ($1,500 less | | | | For rental properties, a minimum payment may allow |
| $1,200). | | | | you to collect enough rent to make a monthly profit or |
| An increase in your loan size is known as negative | | | | be closer to it. The minimum start rate is usually higher |
| amortization. | | | | than 1%. It can often be 2% or higher on rental |
| If you continue to make minimum payments over time, | | | | properties. It can still be helpful. |
| your loan balance will continue to increase. | | | | For some people a minimum payment may be the |
| The level of your minimum payment can also be reset, | | | | option they choose once in a while. Some months they |
| typically on an annual basis. The minimum payment is | | | | pay more, some months they pay less. |
| usually fixed for 12 month periods at a time. Once a | | | | For some borrowers the minimum payment may be |
| year, the minimum payment typically increases slightly. | | | | an attractive option because it allows them to put the |
| For example, the minimum payment each month for | | | | minimum cash into a property while riding up its value |
| the first year may be $1,200, then the second year it | | | | (this is the concept of leverage). |
| may be $1,300, the third year it may rise to $1,400, etc. | | | | The risk of owing more on your property than it is |
| This increase is usually predefined in the loan. | | | | worth is something to seriously consider. |
| Minimum payment levels usually last for the first 5 | | | | |