Options ARMs are not dead
Just got off the phone with a lender, pitching a new variant on the option ARM. This one allows the minimum payment to based on 0.25% interest only payment. So on a $800,000 this program's minimum payment would be only $167 vs. a traditional minimum payment of $2,761 vs. the interest only being $4,583.
Scenario # 1 2 3
Primary Loan $800,000 $800,000 $800,000
Loan Program minimum pmt minimum pmt @1.5% interest only
Rate 0.250% 1.500% 6.625%
Payment $167 $2,761 $4,583
The bank wants a 660 fico and the borrower can go stated or full doc. The interest rate fully indexed he quoted me was 6.875% fixed for 5 years, with a 3 year pre-pay and 1 point charged.
Again as most you should know by my slogan on my business card "Friends Don't Let Friends Buy Options ARMs", I'm not a proponent of Option ARMs and todate have yet to originate even one. I still like to see the iterations that keep beng made of these products to legitimize.
I can see this product being used by an investor to minimize cash-flow during the construction phase. It does require 30% equity, and if the project is expected to be completed in a shorter time, you'd have to buy out the prepay. There's no hit for investor properties, so 6.875% rate isn't bad.
Scenario # 1 2 3
Primary Loan $800,000 $800,000 $800,000
Loan Program minimum pmt minimum pmt @1.5% interest only
Rate 0.250% 1.500% 6.625%
Payment $167 $2,761 $4,583
The bank wants a 660 fico and the borrower can go stated or full doc. The interest rate fully indexed he quoted me was 6.875% fixed for 5 years, with a 3 year pre-pay and 1 point charged.
Again as most you should know by my slogan on my business card "Friends Don't Let Friends Buy Options ARMs", I'm not a proponent of Option ARMs and todate have yet to originate even one. I still like to see the iterations that keep beng made of these products to legitimize.
I can see this product being used by an investor to minimize cash-flow during the construction phase. It does require 30% equity, and if the project is expected to be completed in a shorter time, you'd have to buy out the prepay. There's no hit for investor properties, so 6.875% rate isn't bad.
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