Home Loans
What Is The Interest Rate On A Minimum Payment Option Loan
(presented by www.refinance-refinance.net - mortgage lenders)
By Ben Afzal
Minimum Payment Option Basics
A minimum payment option loan allows a borrower to make a minimum payment on their mortgage. This amount is often below the interest only level.
A 1% minimum payment option loan allows a borrower to make a minimum payment at the 1% rate. Your minimum payment is calculated using 1%, but your interest rate is a different number.
A minimum payment made usually results in negative amortization. This is when your loan size increases. This happens whenever you make a mortgage payment that is less than interest only.
The interest rate on this loan is very different than the minimum payment rate.
The interest rate is usually the combination of an interest rate index and a margin.
The interest rate index is an index that tracks interest rate levels. There are many different interest rate indexes, including the LIBOR index, the CODI index, and the CODI index.
These interest indexes are usually independent third party indexes that a lender can base their loan on. In this way the lender is not dictating directly the changes to your interest rate.
The margin for a loan is the lender
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