Of the many loan programs available the most unique is what is called the Flex Pay Option Loan. The loan has flexible payment options with start rates as low as 1%.Flex Pay Option Loans are available for purchases or refinance, primary residences or income properties as well as multifamily 5 plus unit apartments.
The different pay options vary from an interest only payment to a 40 year amortized payment and everything in between.
These loans work great for investors because they have flexibility each month with their payment.
These loans are also great for people who have variable income such as people who are self-employed, or people who earn a commission.
There are several different indices that your payment rate is based upon. The Libor, COFI, and the MTA index. That payment also has a margin that will depend on several things such as if it is a cash-out refinance, owner occupied or investment property among other things. The index and margin are added together for your monthly rate.
People use these types of loans for different reasons. For investors - if the home is in a hot area where appreciation is high the investor can cash flow because of the lower payments associated with this typ of loan and still build equity on the appreciation each year.
Flex Pay Option loans can negatively amortize. In other words, the principal amount (initial loan amount) may increase over time.
Flex Pay Option loans are also called commonly Option ARMs. There are many types of Flex Pay-Option ARM programs out there and all suit different types of needs and preferences. The person looking into a Flex Pay Option ARM should be fully aware of all the features of the product so it can be used wisely without problems. Too many people take on these products without fully understanding their benefits and features. The home owner that considers these types of loans should always be willing to take advantage of the minimum payment feature that reduces the requirement of monthly mortgage payment obligation. One who likes only the interest-only, 30yr and 15yr full payment options, but not the minimum payment are ususally not the best candidates for the product. They would be better suited for a fixed period ARM or fixed rate mortgage.
There are several advantages of a Pay Option loan but one of the biggest is cash flow control. In high cost of living areas such as California and the northeast, cash flow is a problem for many homeowners. The cash flow releif from a Pay Option loan can often allow homeowners to avoid other high interest debt like credit cards.
With these programs you can always pay at a 30 year rate if you want. The program gives you the most flexibility. If you need cashflow one month then it's there. The next month you can always pay towards principle if you want.
These loans are not only good for self employed but also for new professionals who have entered into high paying fields that will see a significant increase in income over the next five years. This give them the ability to buy a higher end home with the lower payment and then paying into principal as their income increases.
With many option ARM programs your minimum payment will increase 7.5% per year until the loan is recast.
