Choose a payment. ARM payment option. Or how about a negative setting?
Do you remember some of the big players like World Savings,
Fourteen years ago it ended. Negative adjustable rate mortgages allowed borrowers to make a partial or minimal payment on the house, with the unpaid portion being added to the mortgage balance. The balance could grow up to 125% of the original loan amount.
Never again. Never again would mortgage lenders have the nerve to peddle this pipe dream of largely unsustainable home financing. Or would they?
“This mortgage will blow your mind,” according to its marketing campaign.
This adjustable rate mortgage product is very different from older negative amortization mortgages, according to
“It can be a way to break inflation,” Shoop said.
Additionally, underwriting is much more conservative than it was during the crisis, Shoop said.
Income verification and a minimum credit score of 700 are required. Debt ratios (total home payment and monthly bills divided by monthly gross income) are capped at 52%, assuming the highest possible mortgage balance and payment after five years.
Here is a payment com
parison: The sale price of a principal residence is
A fully amortized principal and interest payment would be
In comparison, if you make the minimum payment of
This deferred payment would be added to the loan balance, according to Shoop. Thus, you would have a new balance of
The deferred interest portion ends after five years, or 60 months.
If the borrower makes the minimum payment for all 60 months, they could see a dramatic increase in payment at month 61.
It is difficult to calculate exactly what this additional payment would be since it is a variable rate mortgage. Contractually, the rate of the mortgage note could increase by up to 5% compared to the starting rate.
Negative amortization mortgages aren’t illegal, says mortgage lawyer
“You have to take additional steps to prove your ability to repay (negatively amortized mortgages),” Horn said.
But it’s similar to the kinds of exotic lending that led to the 2007 mortgage meltdown.
If you’re looking for a type of lower mortgage payment to protect against inflation, you might consider an interest-only mortgage as an alternative.
I found a 30-year variable rate purchase mortgage with an interest rate of 3.875% for the first five years. Payment of interest only is
Compare that to Axos’ negative adjustable rate of 5.25% for borrowers making the minimum deferred interest payment.
Shoop said the deferred interest payment could be good for anyone with fluctuating incomes, such as lawyers, real estate professionals and those whose income is based on commissions.
I suggest you carefully review the terms of this program and the worst amortization schedule with your mortgage originator and financial advisor to fully understand what you are getting yourself into.
Full disclosure: I am a former client of Axos Bank mortgage broker when called
I recently applied to be a client.
Conclusion: Assuming a borrower obtains the average 30-year fixed rate on a
What I see: Locally, well-qualified borrowers can get the following fixed rate mortgages without points: A 30-year FHA at 4.25%, a 15-year conventional at 4.125%, a 30-year conventional at 4.875 %, a one-year conventional high-balance 15 (
Eye-catching loan of the week: a 30-year revisable mortgage, blocked for the first 10 years at 3.75%, with 1.25 points.