Home Loans
How Do I Tell If A Minimum Payment Option Loan Works For Me?
(presented by www.refinance-refinance.net - mortgage lenders)
By Ben Afzal
Basics
A minimum payment option mortgage allows you to make a minimum payment:
- for an initial period of time, such as several years
- a payment that is smaller than an interest only payment
- much less than a regular mortgage payment
The interest rate on these loans are typically based on:
- an interest rate index
- margin
What many borrowers like is that the minimum payment options are often fixed for several years.
The minimum payments made can increase your loan balance. Every penny that is less than an interest only payment is added onto your loan balance.
For example, if a loan has:
- an interest only payment of $1,600 per month
- a minimum payment of $1,200 per month
- the difference of $400 is added onto the principal of the loan if a borrower makes the minimum payment
The minimum payment is usually fixed for 12 months at a time, and rises slightly each year.
Minimum payments can usually be made for the first several years.
Many minimum payment option loans have a maximum amount by which the loan balance can increase before the minimum payment option goes away. This can be 115% of the original balance, although you would have to check an actual offer to see what your loan’s specific terms are.
An Example Of Minimum Payment Options
Assume you own a property worth $350,000 and you have a loan of $300,000 on the property. Your equity in the property is $50,000.
This is a choice individual borrowers need to make for themselves. There is risk as well as opportunity with a minimum payment option loan.
At some point in the future if you don’t like the loan you may be able to refinance into the new loan you want.
There are many free mortgage calculators available o!
nline to
help you figure this out.
