Although economic conditions are such that a person can easily roll short-term debt, which is currently very high, into long-term debt, which is much lower, and save both money and time (amortization of the debt), a sizeable number of people either don't want to do that or think they can't really afford to do that. They instead want the lowest possible payment allowed. The result is many people end up with an option arm and really ruin their financial condition. An option arm ends up to be a method in which you can borrow against your equity and keep your payment low which results in you giving up large amounts of your equity.
There are other ways that really make sense. You can do it with amortization and you can do it with payment plans. You don't have to do it by borrowing from yourself.
Let's start with amortization. A person can take an interest-only loan and get the absolute lowest payment available, assuming they get a good interest rate. If the fixed portion of an arm is a short term, it will give lower interest rates than if it were a long term. Thus, a 1-year or 3-year arm (fixed for that period) will give you a lower rate than a 7- or 10-year arm. Just add an interest-only option and you are there. For those who listen to the pundits on Wall Street tell you this is dangerous, you can take a 40-year amortization, which is between a 30-year and interest-only.
You can take a 2- or 3-step mortgage where your interest rate is lower than the market for one or two years and then finishes up the remaining 28 years a bit above the market. (You can refinance after the first two years). You can take a variable, even an option arm, and set yourself up a fixed payment schedule that will keep your payment low but not have bad consequences.
Example: Option Arm 1% $250,000 $636/MO. ($718) negative, if paid as a 15-year amortization $1494 resulting in $140 positive. The negative and positive means you either add the negative to your balance or subtract the positive because 1% is the pay rate, the interest rate is really in the mid sixes.
We at Manhattan West have the ability to design any type of payment you want if you will call us at 949- 5553 or write to me @ MortgageMinuteGuy.com and give us a try.
You can do it your way, we'll help you succeed.