Interest rates as Low as 1%

The fine print reads: 1% for the first month, but the lender doesn’t emphasize that part of the ad. They want you to call up and be wowed by that unbelievably low 1% interest rate, and not ask any further questions about the details. It really goes back to that old saw of “if it sounds too good to be true..”

In actuality, this really may be the best loan for you. This is a potential negative amortizing loan (to use the proper term). The calculation of the rate of an adjustable loan is by combining an index and a margin. Examples of indexes are: prime rate, cost of funds, and 6Mo. LIBOR. The margin is a percentage over the index and will vary depending on which index is chosen. For example, the index may be prime rate(currently at 5.5%), add a margin of 1% and your true rate would be 6.5%. When the prime rate changes, your rate changes. Almost all adjustable rate mortgages come with a teaser or introductory rate that is set for the first few months of the loan. A neg-am loan operates when the initial payment doesn’t change when the initial interest rate does. If you are paying at the 1% interest rate but the true interest rate is 4.5%, then the amount that you aren’t paying, the 3.5% difference, is added to the balance of your loan. This is called negative amortizing.

How could this possibly be a great loan? If your income varies from month to month, or year-to-year, when your income is low you have the ability to make the minimum payments and let the loan “go negative”. When your income is high, you pay the fully indexed higher payment. This loan is really good for commissioned or self-employed people.

If you’re still confused (and I can certainly understand why!) give me a call and we can talk about your specifics.

Fixed mortgage rates for conforming loans (under $359,650) as of 2/18/05 are:
(rates quoted are at 0 points)
30 year: 5.625% (APR 5.70 %) payments are $2,070.35/mo.
15 year: 5.25% (APR5.38%) payments are $2,891.15/mo.