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Flexible Payment Option Loans.
A Flexible Payment Option Loan is a unique product in that the borrower is given a choice of three (3) different payments each month. The borrower may pay just the starting rate interest payment, the full interest payment or the fully amortized payment.
These programs are Adjustable Rate Mortgage products and most are tied to the 12 month average of the Treasury Arm.
As an example, you may have a start rate interest of l.5%. That is all you are required to pay for your payment for the 1st year. However, the true interest rate may be 5.5%. This would put your loan into negative amortization since you are not making a payment great enough to cover the true interest. If not watched carefully, you could owe more on the house than the original purchase price. This is a good loan if you are in an area where you are having rapidly escalating appreciation.
The loan parameters vary per bank and this loan is only recommended for the very savvy borrower due to the danger of negative amortization.
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