Option ARMs for Investment
Property
Option ARMs
If you are 100% cash flow driven and would like to
diversify for rental property holdings, the Option
ARM may be the way to go. "Cash Flow" is the name of
the game. Income varies monthly when a tenant is
lost and unplanned expenses come up. For many, the
mortgage payment is our largest monthly expense, and
the least flexible. The Option ARM for investment
property was designed to give you control over your
mortgage payment. You can choose one of four payment
options each month based on your cash flow needs:
- Minimum Payment A payment that is set
for 12 or 60 months at a reduced rate. The
minimum payment rate for the 12 month option
could be as low as 1.50% and the 60 month option
as low as 2.50%. This maximizes cash flow and
may also defer payment of interest allowing
greater flexibility in managing your tax
deductions. This minimum payment cannot increase
by more than a certain percantage each year. If
you have concerns over deferred interest (which
is added to your loan amount), become educated
about the small amount of appreciation required
to offset it.
- Interest Only Payment Defer paying
principal and improve cash flow. This option is
usually not available if the interest only
payment is less than the minimum payment.
- Fully Amortizing Payment Options You
may make a principal and interest payment based
on either a 30 year or 15 year payment schedule.
- Additional Options If you want the
additional security of a fixed payment while
taking advantage of the low Option ARM payment
rates, there is a 5 year fixed payment option.
With the 5 year Fixed Payment, you have a fixed
minimum payment for five years. You have the
four payment options to select from to manage
your cash flow. You may also have the option to
increase the term of your option arm from 30 to
40 years, thus lowering your payment further.
The Minimum Payment Advantage The
example below is based on a $400,000 mortgage.
It compares a traditional 30 year fixed rate
payment to the minimum payment available on the
Option ARM. Assumes that the Minimum Payment
increases by the maximum 7.5% per year.
| |
30 Fixed |
Cash Flow
Minimum |
Monthly Savings |
Annual Savings |
| Year 1 |
$2,855 |
$1,287 |
$1,586 |
$18,816 |
| Year 2 |
$2,855 |
$1,384 |
$1,471 |
$17,652 |
| Year 3 |
$2,855 |
$1,488 |
$1,367 |
$16,404 |
| |
|
Savings over 3 years |
$52,872 |
|
| |
|
Savings invested at 8% |
$56,885 |
|
|
| 
.jpg)
