Every month, you can
elect to make one of four different payment options.
These options will arrive to you monthly in your
mortgage statement. The four payment options are:
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1. Minimum Payment |
One of the lowest
mortgage Payments in the
US. This can result in some Principal and Interest being deferred
(Negative Amortization) during the first 5 Years.
Any payment that is below the interest only
payment, you will defer that interest and the
amount will be added to the Mortgage. This minimum
payment can increase by 7.5%. Regardless of where
interest rates go, this payment will be available
for the first 5-years of the loan. |
|
2. Interest-Only
Payment |
This will insure
no negative amortization and still provide a low
interest only payment. This payment is based off
the
fully indexed rate. |
|
3. 30-Year Payment |
This payment is
the 30-year, principal and interest payment. This
payment is based off the fully indexed rate.
|
|
4. Pay 15-year
payment |
This payment is
the 15-year, principal and interest payment. This
payment is based off the fully indexed rate.
|
Why Pay the
Minimum Payment?
The minimum payment
can allow a borrower to increase their cash flow by
reducing their mortgage payment. People use the cash
flow savings to:
|
1. Debt Reduction
- Use the extra savings to pay off more expensive
debts that carry higher interest. |
|
2. Investment-
Apply the savings to an investment that will pay a
higher rate than the mortgage. |
|
3. Expedite the
2nd Mortgage Payoff- The borrower can pay off a
higher rate second mortgage. |
Some borrowers may
never elect to pay the minimum payment. However, they
have the peace of mind knowing that they can always
afford the minimum payment.
Who is ideal
for an MTA mortgage?
1. Fluctuating Income
- People that have income that varies from month to
month often prefer knowing that they can pay less when
times are tough and more when business is better.
Commission, Self-employed, seasonal and gratuity based
positions are perfect for this loan.
2. Landlords- This
loan carries great terms on Investment properties. If a
renter does not pay or the property is vacant longer
than expected, the minimum payment can help keep the
cash flow loss to a minimum.
3. High Cost Housing-
A 30-year mortgage is often times too expensive. This
loan will allow a borrower to afford a much more
expensive home while keeping the monthly payments low
while still having a fixed and predictable payment for
the first five years while the minimum payment is
available.
4. Investors -
Because of the ability to increase cash flow, this loan
will naturally appeal to the savvy investor. If you can
make a safe 10% investment from the cash flow savings on
the MTA mortgage rate, you can clearly make money while
taking advantage of the mortgage tax advantages.
5. Future Income -
People that are going to increase their pay over the
next 5 years and wish to live in a more expensive home
now. These people can make the minimum payment until
they get the raise or income that they are expecting in
the future.
What are the
disadvantages to the MTA Mortgage?
1. Adjustable - No
matter how you slice it, this mortgage is adjustable.
For people who do not intend on utilizing the MTA
mortgage flexible loan options and intend on living in
their home for 30 years, you may be better off in a
30-year fixed mortgage. Because 30-year fixed mortgages
rates are so low right now, you may as well lock in the
30-year fixed rate instead of opt for an adjustable
mortgage that will, over time, exceed the current
30-year mortgage rates.
2. Little or $0 Down
Payment - The MTA mortgage does not allow for less than
a 5% down payment. If you require 100% financing and
wish for a low payment, you should consider 1, 3, 5 year
interest only ARMS.
What is an
Index?
An index is an independent, published economic
indicator. The following indices are tied to a option
arm: the 12-Month Treasury Average Index (12-MTA), the
11th District Cost of Funds Index (COFI), the 1-Year
Constant Maturity Index (CMT) and the Cost of Savings
Index. Lenders use indices to establish the interest
rate for an adjustable rate mortgage. Additionally, ARM
rates follow the movement of these indices. The lender
adds a specified number of percentage points, called a
margin, to the index to establish the actual ARM
interest rate.
What is the
12-MTA?
The 12-Month Treasury Average Index (12-MTA) is based on
average annual yields on U.S.
Treasury Securities adjusted to a constant maturity of
one year, as made available by the Federal
Reserve. The 12-month average is determined by adding
together the annual yields for the most
recently available 12 months and dividing by 12.
Stability:
The 12-MTA
The 12-MTA Index does not move up or down as rapidly as
other market interest rates because
the 12-MTA is an average of annual yields on U.S.
Treasury Securities over a 12-month period.
As a result:
· Higher yields are offset by lower yields on a monthly
basis throughout the year
· It creates an index which is far less volatile than
other pure-rate indices
· Interest rate increases take longer to affect the
12-MTA than other ARM indices
Historically, home loans tied to the 12-MTA have not
exhibited sharp interest rate increases such
as those that occurred in the late 1980s.
MTA vs. Other
Indices
The MTA is a very
slow index. The index is nearly as stable as the world's
most stable index, The Cost of Savings Index. However,
MTA mortgages generally have better margins which are
fixed through the lifetime of the mortgage. Because the
MTA is an average annual yields on U.S.
Treasury Securities there is an inherent "lag" in the
index which ultimately causes the index to move very
slowly. |
