Home Mortgages: How About Those 1.75% Loans?

You've undoubtedly heard or seen ads for mortgages with very low interest rates such as 1.75%. For example, one mortgage company in the city where I live is advertising a 40-year mortgage with a 1.75% interest rate. That sounds like a pretty good deal, doesn't it? After all, if you were to buy a house for $250,000 with this rate, your payment (not including taxes and insurance) would be only $632 a month.

Maybe this mortgage would be a good deal for you. But before you leap to the phone or fill out an application, make sure you understand how these mortgages work.

They are called option ARMs. This is because they offer four options from which you must choose: minimum monthly payment, interest-only payment, full principle and interest amortized over 30 years, and full principle and interest amortized over 15 years.

If you choose the minimum payment option, which is at the advertised 1.75% interest rate, you pay nothing towards the principle and less interest than what accrues on the loan. The unpaid interest is added to the loan balance, and you become subject to what's known as negative amortization.

In other words, as you make the minimum payment, your loan balance will continue to grow. And, if interest rates go up, which they are most likely to do, your loan balance will grow even faster, to a point. For example, depending on your loan, when your balance reaches a level, such as 110%, 115% or 125% of the original balance, the loan is "recast," and your minimum payment goes up.

There are two dangers to the minimum payment option. The first is that the lower the "teaser" rate (usually 1.75%), the higher the potential increase in monthly payments if the interest rate goes up, as it most certainly will.

The second danger is that you could literally end up owing more than your house is worth, In fact, one economist recently said "They are a lot more dangerous (than an interest only loan) because the borrower is giving away part of his equity, sometimes unknowingly."

For example, on a $250,000 mortgage if the balance reached 115% due to negative amortization, the total mortgage would then be $230,000.

It's difficult to compare a minimum payment option ARM with a five-year fixed rate, interest only loan because pf the differences between the two. However, for the sake of the example, the payment on a $250,000 minimum payment option ARM the first year could be as low as $632. However, because of negative amortization, the balance owed on your mortgage could grow to $210,000 or more by the end of the second year.

In comparison, a 5-year, fixed rate, interest only loan on that same $250,000 at 5.50%, would have a monthly payment of $1145.83. This payment would remain the same for all 60 months (five years) and the balance of your loan would still be $250,000.

So, what lesson is to be learned here? It is that option ARMs can save you money but can be very complex. You need to fully understand what you are doing before you sign up for one. Your loan documents will disclose the risks, so read everything carefully. The documents may have to tell the truth, but marketing materials can be misleading. So read, read, read and if there is anything that isn't clear, make your mortgage broker explain it until you are certain you understand all the details.

For FREE help with debt and credit, subscribe today to Douglas Hanna's free email newsletter "8 Simple Steps to Debt Relief" at http://www.all-in-one-info.com. Douglas spent nearly 30 years in marketing working with a number of financial institutions. He is also the author of the book "Money Secrets - Real World Information for Today's Families."

---

Google News Updated : Thu, 24 Jul 2008 18:51:58 GMT FOX News Poll: No Bounce for Obama From Overseas Trip - FOXNews ABC News FOX News Poll: No Bounce for Obama From Overseas Trip FOXNews - 27 minutes ago By Dana Blanton The significant news coverage Barack Obama is receiving on his foreign trip has not translated into a bounce in his numbers, a just-released FOX News poll shows. Wanted: 2 million poll workers for November The Associated Press Comment by Leonard Steinhorn Prof, School of Communication, American University New York Times - CNN - United Press International - PolitickerCA all 689 news articles Publ.Date : Thu, 24 Jul 2008 18:24:50 GMT Would UN Security Council Postpone Any Prosecution of Sudanese Leader? - Voice of America Voice of America Would UN Security Council Postpone Any Prosecution of Sudanese Leader? Voice of America - 1 hour ago By Joe De Capua As the International Criminal Court (ICC) considers whether to issue arrest warrants for Sudanese President al-Bashir, some are calling on the UN Security Council to block the action. Sudan's Beshir pledges peace as he leaves Darfur AFP Jordan's lower house opposes charges against Sudanese president Xinhua Hindu - Los Angeles Times - istockAnalyst.com - AllAfrica.com all 1,823 news articles Publ.Date : Thu, 24 Jul 2008 17:30:10 GMT Swimmer’s Positive Test Puts Olympic Berth Doubt - New York Times New York Times Swimmer’s Positive Test Puts Olympic Berth Doubt New York Times - 30 minutes ago By KAREN CROUSE The swimmer Jessica Hardy has not been penalized for a doping offense despite published reports that she tested positive for a banned substance. Video: Source:Hardy Tests Positive for Banned Substance AssociatedPress Sequence doesn't make Sense Los Angeles Times Gay Wired - Palo Alto Online - The Wenatchee World Online - The Associated Press all 750 news articles Publ.Date : Thu, 24 Jul 2008 18:21:30 GMT Arizona reports first West Nile death of 2008 - Bizjournals.com TheMedGuru Arizona reports first West Nile death of 2008 Bizjournals.com - 1 hour ago Arizona has reported its first death from the West Nile virus this year. It also is the first West Nile death in the US this year. First bird in Nassau tests positive for West Nile Newsday Fighting West Nile Alexandria Gazette Packet KTAR.com - AZFamily - FOXBusiness - Boston Globe all 231 news articles Publ.Date : Thu, 24 Jul 2008 17:45:00 GMT Ford Has $8.7 Billion Loss, Shifts Away From Trucks (Update4) - Bloomberg Ford Has $8.7 Billion Loss, Shifts Away From Trucks (Update4) Bloomberg - 44 minutes ago By Bill Koenig July 24 (Bloomberg) -- Ford Motor Co., the world's third- biggest automaker, posted a record quarterly loss of $8.7 billion and accelerated a conversion to fuel-efficient vehicles to wean itself from money-losing trucks. Ford's Worst Quarter Ever BusinessWeek Ford Posts Loss of $8.7 Billion on Asset Woes New York Times Forbes - CNNMoney.com - Reuters - Los Angeles Times all 1,181 news articles Publ.Date : Thu, 24 Jul 2008 18:07:48 GMT Health Buzz: A $500 million Antismoking Campaign and Other Health News - U.S. News & World Report BBC News Health Buzz: A $500 million Antismoking Campaign and Other Health News U.S. News & World Report - 3 hours ago Billionaires Bill Gates and New York City Mayor Michael R. Bloomberg announced yesterday that they'll contribute a combined $500 million to a worldwide antismoking campaign, the New York Times reports. Video: Gates, Bloomberg Pool Riches to Fight Smoking AssociatedPress The $500 million war on smoking Minneapolis Star Tribune Reuters - Newsday - Economist - California Healthline all 639 news articles Publ.Date : Thu, 24 Jul 2008 15:43:30 GMT South Texas begins cleanup after Hurricane Dolly - The Associated Press Calgary Herald South Texas begins cleanup after Hurricane Dolly The Associated Press - 30 minutes ago HARLINGEN, Texas (AP) - Residents across south Texas slogged through knee-deep muddy waters, tiptoed around downed power lines and dug through debris Thursday, but were thankful that Hurricane Dolly didn't pack the wallop they had feared. Video: Tropical Storm Dolly Causes Flood Worries AssociatedPress Dolly weakens, pushes inland USA Today East Valley Tribune - AHN - KIII TV3 - KVIA all 7,399 news articles Publ.Date : Thu, 24 Jul 2008 18:21:14 GMT Increase Web Traffic RSS2Blog

PARLOT::Ebooks, Scripts, Websites, and more...

Adsense websites

Buying a Home when Rates go Up

Many people fret the rising tide of interest rates. You'll... Read More

Which is Better? Fixed-Rate or Adjustable-Rate Mortgages

The answer depends on several factors including your financial situation.... Read More

Mortgages After Bankruptcy: Easier Than You Would Expect

Give yourself time to rebound. Whether you had to turn... Read More

Jacksonville Florida Real Estate Mortgage Home Loans - Get the Best Rate Everytime

There are hundreds of mortgage companies in the Jacksonville real... Read More

Why You Should Not Get Hung Up on the Interest Rates!!

This is what a mortgage can do for you!AND Why... Read More

Advantages Of Mortgage Pre-Approval

There are several advantages to getting mortgage pre-approval before looking... Read More

A Guide to Getting Bad Credit Home Improvement Loans

You might be wanting to look into bad credit home... Read More

Bad Credit Home Loans - Dealing With Bad Credit Mortgage Companies Online

Dealing with mortgage companies online can enable you to get... Read More

Home Equity Loans in Texas

A few notes of importance: This only applies to... Read More

5 Tips for Savvy Use of Your Home Equity Line of Credit

Tapping your home's equity to pay college expenses, consolidate credit... Read More

Why Choose a Home Owner Loan?

Most people choose a home owner loan as it can... Read More

Flexible Mortgages - Offering Relief from the Fixed Mortgage

A pension mortgage may seem lucrative at the first sight.... Read More

Thought Fixed Rate Will Give You a Respite from the Perils of Variable Rates! Think Again

Slight increases in the interest rates raise your hackles. Tension... Read More

Cash Out Refinance Mortgage Loans ? Home Equity, 2nd Mortgage or Cash Out Refinance Loan

There are some definite benefits to doing a cash out... Read More

Home Equity Loans - Are They Right For You?

The bills are out of control and you need a... Read More

How To Tap In To Your Home Equity

With today's relatively low interest rates and climbing property values,... Read More

Should You Get a Home Inspection?

It's very important, and in my opinion, mandatory to have... Read More

Bad Credit Remortgage Loan: When Bad Credit Plays Mischief With Your Mortgage

Financial difficulties are married to bad credit. It is a... Read More

Top 5 Methods to Manage Your Home Equity

As your home appreciates in value, you gain equity. You... Read More

Home Loans and Mortgages ? Beware of New ?Mortgage Elimination? Scam

The booming real estate market has allowed many Americans to... Read More

Home Equity Loans - How To Use Your Homes Equity to Consolidate Debt

If you've got a wallet full of credit cards, and... Read More

Secured Homeowner Loans to Reiterate that a Home Provides More than a Roof Over Your Head

"The ache for home lives in all of us, the... Read More

A Guide to the Best Remortgage Deals

Finding the best remortgage deals isn't always easy, especially with... Read More

Bad Credit Refinance Loans - Finding a Good Lender

Finding a good lender to help you with refinancing your... Read More

Mortgages - Which Loan is Right For You

When buying a home, you need to take a home... Read More