Buy a House for Less than Your New Hybrid

January 18, 2007 No Comments »

As the mortgage industry shudders, and real estate goes cold, lenders continue to release exotic mortgage programs to further entice borrowers to purchase homes and refinance existing loans.

The latest mortgage program of interest (no pun intended) comes in the form of a fixed 0.25% option-arm, but at a rate lower than anything I have ever seen offered. Not the standard 1% fully amortized minimum payment, but a mere 0.25%.

Yes, you read that right. One-quarter of one percent is the mortgage rate on this loan program, if you can believe it. And not only is it a fixed 0.25%, it is an interest-only mortgage too!

Borrow $1 Million for Just Over $200 per Month

To illustrate just how crazy this is, a $1,000,000 loan amount comes with a monthly payment of $208.33. That’s less than what you’d pay for a Toyota Prius every month. It’s absurd.

While this program may seem too good to be true, it is a negative amortization loan. And all that interest that you aren’t paying each month is piling on top of the principal at a rather alarming rate. After all, the less you pay each month, the more equity gets stripped away.

The program has a negative amortization ceiling of 135%, at which point you’ll need to start paying the interest-only mortgage payment, which is significantly higher, around 7% to 8%.

The 0.25% payment option is offered for a full five years, though it will probably suck the equity out of your home at the rate of a reverse mortgage.

The other catch is that you need equity in your home or a hefty down payment to qualify for the program.

The few mortgage lenders out there offering this program have set a max loan-to-value ratio of 70%, so you must come to the table with at least 30% in equity or down payment.

So all those looking for 100% financing at a rate of 0.25% that is also interest-only should continue to dream on…

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