The Lowest Rates In Town

By: Denise Hostetler


RATES as LOW as 1.25% Cut your House Payment in Half !!
5.5% Fixed Payment !! 3% Interest Only !!
1.00% Mortgage Program..CALL AND ASK HOW – RIGHT NOW

These come-on statements are from flyers that I have received at my own home to solicit mortgage business. Why don’t I ever send you this type of offer with my marketing pieces? I do have these loans available.

If you are like most people, you might be curious about these heavily marketed low rates. If these are so good, then why doesn’t everybody have one of these mortgages? Let me explain how these loans work and then analyze who benefits from this type of mortgage. Maybe it will be your best option. If nothing else, it will satisfy your curiosity when you get one of these “EXCITING” opportunities in the mail.

These low rate loans are known as “Negative Amortization” or “Deferred Interest” loans. The payment is set at the low rate, but the rate is only locked for the first few months (usually 3 months). As the rate moves up, the difference between the payment and the interest rate is added to the principal balance of the loan. Thus the terms, negative amortization or deferred interest.

Let’s say you have a mortgage of $100,000 and a starting rate of 1.25%. Your starting payment will be $333.25 per month (without taxes and insurance). After 3 months, your rate will adjust to the current adjusted rate, but the payment will stay the same. So a good estimate of the adjusted rate would be about 7.5%, which would make the interest only payment at $620.70. Now let’s say you make the minimum payment of $333.25 every month for the first year. After the twelfth month, your mortgage balance would be $101,964.65. As you can see, your loan balance increases instead of decreasing.

Now who will benefit from this kind of loan program?

This type of loan is an excellent choice for real estate investors that look into buying “fixer uppers” or properties in distress. The deferred interest will enable an investor to utilize that cash flow to pay for repairs over the next couple years and then regain the equity lost on the sale of the property.

Another group of people who benefits from this program would be individuals with an irregular source of income. The low payment option during your slow months will allow you to keep your payments to a minimal until your big commission. Once you receive that additional income, you can bring your loan balance down.

Hopefully, this entry will satisfy your curiosity in when you receive one of these flyers. There are a lot of factors that need to be taken into consideration when you are shopping for a loan program. It is important to find a program that best fits your needs. Choosing the right loan program is a key element in the success of homeownership.

© Denise Hostetler 2007

About the Author: Denise Hostetler began her real estate career 20 years ago andspecialized in mortgages for over 16 years. Ms. Hostetler engaged inextensive training in construction-permanent financing. Currently working as a mortgage broker for First Florida Home Loans. Denise can be contacted at 407-822-8886 or denise@firstfloridahomeloans.com

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