Palm Beach Real Estate and Loans

In addition to being a Realtor® in Palm Beach, I am also a Mortgage Broker for Knightlines Mortgage Services, LLC.

One question that comes up VERY frequently is "What's that 1% loan I see all over the place?".

Technically it's known as an 'Option ARM' and it is one of the most misunderstood loans currently available.

It does have a place BUT ---- have you ever heard that if something sounds too good to be true, it probably is?

This is a perfect example.  When it is explained correctly and the borrower understands what it should be used for, it can be a great loan.

The problem is all the hype that surrounds it and the fact that it has been sold to people that have NO idea of what they are getting themselves into!

It's called an 'Option' ARM because every month you have a choice of several ways to make your payment - having choices is a great thing.  But make sure you UNDERSTAND them!

Your 1st choice would be the 30 year payment.  If you paid the amount shown, every month for 30 years, the loan would be payed off. Easy.

Second is the 15 year payment, same idea as the 30 yr, just set up so that the loan would be paid off in 15 years. Also easy.

Next is an Interest-Only option. This pays off the interest on the 30 year payment - it does NOT pay down the loan balance.

Lastly is the Minimum Payment.  This is the 1% you hear so much about.  (BTW, things need to be pretty great for you to actually get the 1% - depending on your credit and the actual loan info, you could be closer to or even over 2%).  This choice is the lowest payment of the 4.  That alone dosen't make it a bad thing.

BUT

The problem comes in with the fact that the minimum payment dosen't even cover the interest due in that month!  The difference between the Minimum payment and the Interest-Only payment is added to the loan balance.  That is what is called NEGATIVE AMORTIZATION.  Some Lenders will actually let you 'Neg Am' up to 125% of your original loan amount!  Once you hit whatever the particular Lenders' maximum is, the Minimum payment option is removed.

 OK, I'm getting a little long-winded.  Let the information sink in and I'll finish this post up tomorrow.

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