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Tiger · 10-31-2007, 08:09 PM

I am buying a house and the house is worth 425k and I need to borrow 300k. A company (Money Warehouse) is giving me an ARM MORTGAGE at 1.95% for 5 years and then after that the rate will be 6.82%. It sounds to good to be true for me because I have the ability to pay of the 300k in 5 years but my real question is does the 1.95% sound too low. Another problem I also have is I am putting down 30% of 425k which is like 127k+-. What would be considered a good loan.<br />

Gainer · 10-31-2007, 08:09 PM

that's an OPTION ARM...find out what the FULLY INDEXED RATE is.....probably around 6-7%.....you're going to be having negative amortization.
you pay 1.95%...and the full rate may be 7%...that means 5.05% is being transferred to the principal

a good rate for a 30yr fixed maybe around 6.25%-6.375%.
Rates have been going up..and will continue to go up.

Exodus · 10-31-2007, 08:09 PM

something isn't right before you sign with them you better have a lawyer look at the contract

taxfilez · 10-31-2007, 08:09 PM

Yes, it sounds too good to be true, if you have ability to pay off $300K in 5 years @1.95% arm. So, you will pay about $27K for 5years total interest, which is not bad at all. Go for it and make sure that you pay off in 5years. Is your monthly payment is around $5500/month w/out insurance?

forex101 · 10-31-2007, 08:09 PM

It's a good idea to put down a large amount of money up front, but I'd stay away from the ARM Loans right now. You heard that about 8 million homeowners are fixing to go into default due to the reset of their ARM Loans to a higher rate. Even with a perfect credit rating you wouldn't be able to get that percentage on a loan. I haven't heard of Money Warehouse before. If I'm thinking correctly it may be a small local company.

I would go with a fix rate loan for like fifteen years. You can pay it off earlier but do it like in five years instead of three years. Companies like to tack on penalties for people paying it off earlier. The other thing is that you said that you can pay the loan off in five years, but that's a long time. Anything can happen during that time. If it does can you still be able to pay the loan within the set time limit?

If you can get a 15 year fixed loan at 4 to 5 percent then it'll be the best bet. I know that you'll be paying little higher in the rate, but it's fixed and no worrying about going higher. I don't see a problem with you to get a loan with a well known company to get a loan.

Alex3 · 10-31-2007, 08:09 PM

You are being sold an Option ARM Loan and you dont need one!

Why?

Because whoever you are dealing with will make more $$ off you for it.

An Option ARM is this:
While you are paying that low 1.9% payment for 5 years.......
a balance still due monthly, is being tacked onto the end of your loan. Your loan goes up. YOu not only DONT pay any principal but you also dont even pay all the interest and it gets added on.

The problem isnt as big when values in home rise.......but if you enter a market where values may drop, you can get in a pickle because refinancing is harder cuz you owe more.

Your putting alot down......so you may still have equity but it's still not the best loan I would guess for your circumstances.

1.95% is just the teaser rate. There is another interest rate on that 5 yrs that its being calculated at.

Basically you'll have 3 payment options......
the 1.9% option wont cover the actual interest that is being charged.......and your loan will negatively amortize...be added to.
you can make the interest only option
you could make the fully amortized option.

There are other programs that give you more security and the option of interest only when you need a lower payment on occasion without negatively amortizing...........

And let me guess........

You have a prepayment penalty?!

Find someone else.........and get other options ........
With your numbers this is not necessary.........this is someone selling their companies most lucrative product.

You can do much better.
Contact us if you would like us to further explain or give you a second opinion on your GFE...........he did give you a GFE i hope.

Open Book Advisors?

bigbuck · 10-31-2007, 08:09 PM

Yes it is too good to be true. This loan is an option arm and the 1.95% payment will not cover the interest that charges each month. It's not the rate of interest, it's just the rate of payment. There is a difference on this loan.
Unless you need as low of a payment as possible and are willing to pay extra for that option (in terms of extra interest charges added to your loan balance), this loan makes absolutely no sense for you.
The really sad thing about your situation is it seems that several people here know more about your situation after reading one paragraph than your loan officer, who is supposed to be acting in your best interest and with an understanding of your situation. At the very least I'd suggest getting a second opinion from a qualified loan officer or bank and asking this loan officer for quotes on other programs that may fit your situation.

bodyguard · 10-31-2007, 08:09 PM

Shop for a new mortgage broker. They do not have your best interest at heart....they have their wallet!

10-31-2007, 08:09 PM	#1 (permalink)
Tiger Greenhorn Join Date: Jul 2006 Posts: 11 Rep Power: 0	Arm Mortgage at 1.95% for 5 years? I am buying a house and the house is worth 425k and I need to borrow 300k. A company (Money Warehouse) is giving me an ARM MORTGAGE at 1.95% for 5 years and then after that the rate will be 6.82%. It sounds to good to be true for me because I have the ability to pay of the 300k in 5 years but my real question is does the 1.95% sound too low. Another problem I also have is I am putting down 30% of 425k which is like 127k+-. What would be considered a good loan.<br />

10-31-2007, 08:09 PM	#2 (permalink)
Gainer Greenhorn Join Date: Jul 2006 Posts: 19 Rep Power: 0	Arm Mortgage at 1.95% for 5 years? that's an OPTION ARM...find out what the FULLY INDEXED RATE is.....probably around 6-7%.....you're going to be having negative amortization. you pay 1.95%...and the full rate may be 7%...that means 5.05% is being transferred to the principal a good rate for a 30yr fixed maybe around 6.25%-6.375%. Rates have been going up..and will continue to go up.

10-31-2007, 08:09 PM	#3 (permalink)
Exodus Greenhorn Join Date: Dec 2006 Posts: 12 Rep Power: 0	Arm Mortgage at 1.95% for 5 years? something isn't right before you sign with them you better have a lawyer look at the contract

10-31-2007, 08:09 PM	#4 (permalink)
taxfilez Greenhorn Join Date: Jul 2006 Posts: 28 Rep Power: 3	Arm Mortgage at 1.95% for 5 years? Yes, it sounds too good to be true, if you have ability to pay off $300K in 5 years @1.95% arm. So, you will pay about $27K for 5years total interest, which is not bad at all. Go for it and make sure that you pay off in 5years. Is your monthly payment is around $5500/month w/out insurance?

10-31-2007, 08:09 PM	#5 (permalink)
forex101 Greenhorn Join Date: Jul 2006 Posts: 36 Rep Power: 3	Arm Mortgage at 1.95% for 5 years? It's a good idea to put down a large amount of money up front, but I'd stay away from the ARM Loans right now. You heard that about 8 million homeowners are fixing to go into default due to the reset of their ARM Loans to a higher rate. Even with a perfect credit rating you wouldn't be able to get that percentage on a loan. I haven't heard of Money Warehouse before. If I'm thinking correctly it may be a small local company. I would go with a fix rate loan for like fifteen years. You can pay it off earlier but do it like in five years instead of three years. Companies like to tack on penalties for people paying it off earlier. The other thing is that you said that you can pay the loan off in five years, but that's a long time. Anything can happen during that time. If it does can you still be able to pay the loan within the set time limit? If you can get a 15 year fixed loan at 4 to 5 percent then it'll be the best bet. I know that you'll be paying little higher in the rate, but it's fixed and no worrying about going higher. I don't see a problem with you to get a loan with a well known company to get a loan.

10-31-2007, 08:09 PM	#6 (permalink)
Alex3 Piggy Bank Join Date: Jul 2006 Posts: 80 Rep Power: 3	Arm Mortgage at 1.95% for 5 years? You are being sold an Option ARM Loan and you dont need one! Why? Because whoever you are dealing with will make more $$ off you for it. An Option ARM is this: While you are paying that low 1.9% payment for 5 years....... a balance still due monthly, is being tacked onto the end of your loan. Your loan goes up. YOu not only DONT pay any principal but you also dont even pay all the interest and it gets added on. The problem isnt as big when values in home rise.......but if you enter a market where values may drop, you can get in a pickle because refinancing is harder cuz you owe more. Your putting alot down......so you may still have equity but it's still not the best loan I would guess for your circumstances. 1.95% is just the teaser rate. There is another interest rate on that 5 yrs that its being calculated at. Basically you'll have 3 payment options...... the 1.9% option wont cover the actual interest that is being charged.......and your loan will negatively amortize...be added to. you can make the interest only option you could make the fully amortized option. There are other programs that give you more security and the option of interest only when you need a lower payment on occasion without negatively amortizing........... And let me guess........ You have a prepayment penalty?! Find someone else.........and get other options ........ With your numbers this is not necessary.........this is someone selling their companies most lucrative product. You can do much better. Contact us if you would like us to further explain or give you a second opinion on your GFE...........he did give you a GFE i hope. Open Book Advisors?

10-31-2007, 08:09 PM	#7 (permalink)
bigbuck Greenhorn Join Date: Jul 2006 Posts: 29 Rep Power: 3	Arm Mortgage at 1.95% for 5 years? Yes it is too good to be true. This loan is an option arm and the 1.95% payment will not cover the interest that charges each month. It's not the rate of interest, it's just the rate of payment. There is a difference on this loan. Unless you need as low of a payment as possible and are willing to pay extra for that option (in terms of extra interest charges added to your loan balance), this loan makes absolutely no sense for you. The really sad thing about your situation is it seems that several people here know more about your situation after reading one paragraph than your loan officer, who is supposed to be acting in your best interest and with an understanding of your situation. At the very least I'd suggest getting a second opinion from a qualified loan officer or bank and asking this loan officer for quotes on other programs that may fit your situation.

10-31-2007, 08:09 PM	#8 (permalink)
bodyguard Greenhorn Join Date: Jul 2006 Posts: 27 Rep Power: 3	Arm Mortgage at 1.95% for 5 years? Shop for a new mortgage broker. They do not have your best interest at heart....they have their wallet!

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