Getting More For Your Money:
Strong & Flexible ARMs Could Be A Nice Gift This Season

By Jon McBride

With those holiday credit card bills rolling in and tax time just around the corner, this time of year can put a tight squeeze on many Americans’ pocketbooks. Wouldn’t it be nice if you could have more payment flexibility and control during leaner months like these? Well, it may be possible.

Adjustable rate mortgages (ARMs) can offer you more choice, more affordable monthly mortgage payments, and more freedom – for potentially less money up front. Home loans with built-in payment flexibility are increasingly being used as strong money-management tools to help put control back in buyers’ hands, and the American dream back within reach. 

Whether you want to qualify for a larger home loan amount, have fluctuating monthly earnings due to self-employment, or just want the flexibility to invest your money elsewhere, an ARM loan may be just the right solution to meet your needs. Many families who are making the switch to have a stay-at-home parent, or those with commission-based income, are opting for an ARM as a smart choice to boost fiscal fitness. 

Here is a brief look at the highlights of some actual mortgage programs available to qualified borrowers. 

PAYOPTION ARM 
With as little as a 5% down payment, a low initial start rate, and a variety of payment possibilities, this adjustable rate mortgage enhances control of monthly mortgage payments for qualified buyers. 

Borrowers benefit from a low adjustable initial start rate during a one-month or three-month introductory period, plus there’s a choice of up to four payment options each month:
1. Minimum required payment;
2. Interest only payment (if greater than the minimum required payment);
3. Full principal and interest (P&I) to amortize the loan over 30 years;
4. Full P&I to amortize the loan over 15 years.

As with most mortgage loans, borrowers can also choose to pay any amount above the billed P&I amounts to more quickly reduce the outstanding principal amount of the loan. 

This can be a good fit for those who are self-employed or work on commission because it allows the freedom to make the minimum required payment during slow months and increase payments as income increases.
Other savvy borrowers make the minimum required payment and then use the extra funds for higher yield investments or even to pay off higher-interest rate credit cards. 

INTEREST ONLY
As the name suggests, this program enables qualified borrowers to make only interest payments for the first 10 or 15 years of the loan. During this time, borrowers are also free to make additional payments to reduce the principal. Then, after the interest only period, the unpaid balance is fully amortized over the remaining term of the loan.

Like an ARM, this program’s lower initial payments may enable borrowers to qualify for a larger loan amount – which could mean a bigger or better home – than would otherwise be possible. The added benefit with the interest only loan is the stability of fixed payments that only change one time (when the loan is re-amortized after the initial period). So the monthly outlay is significantly more predictable than with an ARM. 

An interest only loan can be a great tool for managing monthly expenditures as the initial payments can conform to borrowers’ changing financial situations.

TRADITIONAL ARM
Adjustable rate mortgages frequently boast significantly lower initial rates than 30-year fixed mortgages, making them particularly attractive for borrowers planning to live in a property for a relatively short period of time. 
Also, since payments on an ARM loan can decrease when interest rates fall, borrowers can avoid the cost of refinancing that would be necessary to take advantage of lower interest rates with a 30-year fixed rate loan. 
ARMs can be a good choice for borrowers experiencing temporarily lower incomes or higher expenses, as well as homebuyers who have not yet sold a current residence.

FIXED-PERIOD ARM
These loans blend the benefits of an ARM’s lower initial rate, with the security of a fixed payment for three, five, seven, or 10 years. The 3/1, 5/1, 7/1, and 10/1 options provide qualified borrowers with fixed payments for the time period that they select to best suit their needs (i.e., the first three, five, seven, or 10 years of the loan, respectively). After this period, the rate adjusts annually for the remainder of the loan term. Plus, these loans may require as little as 5% down, so borrowers can obtain maximum financing without the traditional funds needed for down payment.

With so many home loans featuring payment flexibility, it’s never been easier for borrowers to find the best option to fit their needs. Now could be the time to investigate mortgages that yield increased buying power, affordability, and control.

This article is for informational purposes only and is not a substitution for obtaining advice from a qualified mortgage professional regarding your particular situation and the details of ARM loan programs for which you may qualify. 

Jon McBride is the branch manager of the Durham office of Countrywide Home Loans, a national leader in residential finance. The office is located at 4620 Creekstone Dr., Ste. 110 in Durham. He may be reached at 941-6442. Additional information about the company’s products and services is also available online at <www.countrywide.com>.