Hybrids- They’re Not Just for Cars Anymore!

To quote Ronald Reagan, when he was governor of California, “The sound you hear is concrete cracking”. My opposition to potential negative amortizing loans is well known (they have dressed this pig up and called it a “pick-a-pay”, or “option arm”). Well, the lenders, seeing a home mortgage default crisis coming at them like a freight train because of this type of loan, have rolled out a new hybrid mortgage. These new hybrids are a blend of a fixed rate and the neg-am loan.

The essence of a hybrid is a fixed note rate, which a neg-am loan never contained, and a payment option as low as 1%. Like a potential neg-am, if the borrower makes the minimum monthly payment at the 1% rate, then the principal balance of the loan will go up, not down. You won’t pay off/down the loan in other words. However, with a hybrid, the interest rate, or note rate, is fixed for a certain amount of time (usually 5 years). This means you won’t have an unknown and, potentially, an unlimited amount the loan can go negative.

The loan can be properly used in different scenarios such as if either a husband or wife lost their job then they could make the minimum payment until a new job was found; or, in the case of a rental property, make the minimum payment when the property is vacant and the full payment when it is rented.

The note rate for this loan is competitive with similar 5 year fixed rates, currently in the mid-6% range, and this home loan may be just the ticket for some people to get off that freight train! There are some other restrictions with this loan, so give me a call if you think this loan ma be right for you.

Fixed rate loans for conforming mortgages (under $417,000) as of 6/22/07 (a.m.) are:
(rates quoted are for 0 point loans for a 1 point loan subtract ¼% in the interest rate)
30 year fixed: 6.625% (APR 6.70%) payments are $2,670.10/mo.
15 year fixed: 6.25% (APR 6.37%) payments are $3,575.45/mo.