If you read this newsletter monthly you know that I hate getting into “technical” mortgage
topics. They are usually incredibly boring and, in most cases, don’t really help you as
clients.

However, adjustable rate mortgages (ARM) completely dominated fixed-rate mortgages
(FRM) in the past few years. More and more people chose ARMs because they are generally 1-2
points lower than a FRM. This allowed them to qualify to buy a more expensive house.

Today, many of those loans are adjusting. In fact, more than ever.

I have discussed the pros and cons of an ARM before so I will avoid that here.
However, the people, who choose ARMs are all asking me the same question….how does it
adjust?

Let’s get down to the basics of the adjustable rate mortgage (ARM). Most ARM’s are now
classified as “hybrid mortgages.” A hybrid mortgage combines the features of both fixed-rate and
adjustable-rate mortgages.

It starts out with an interest rate that is fixed for a period of years (usually 2, 3, 5, 7 or 10 years).
At the end of this period of years, the loan converts to an ARM. At that point it adjusts and then
will do so every six months or once per year depending on the program you choose.

It does this for 30 years. ARMs are still 30-year loans. The rate is just not FIXED for 30 years. It
is adjustable.

I am amazed at how many clients aren’t aware of this and even more surprised at the amount of professionals in our business who do not know this.

I have heard many agents recommending ARMs to their clients tell them they MUST refinance at the end of 3 years on a 3 YR ARM. Although, this may not be a bad idea depending on market conditions at the time, this is NOT required.

A reminder….almost always, the shorter the term of the mortgage, the lower the rate. As a result,
a mortgage fixed for 10 years has a lower rate than one fixed for 30, a 7 year fixed rate is lower
than one fixed for 10, a 5 year fixed rate is lower than one for 7, a 3 year fixed rate is lower than
one for 5, and so on.

Why is this? The shorter the term of your loan, the less risk it is to the lending bank.

Example: If the bank loans you money today, in 2005, at a fixed rate for the next 30 years at
5.875% and interest rates shoot to 8.000% five years from now, in 2010, they are stuck with your
loan at 5.875%. Obviously this is not the best investment on their money in 2010. They made a
commitment to you in 2005 and in 2010 it now is killing them. However, if you give them the
ability to “correct” this or “adjust” this at some point, they can try and catch up to the market
conditions at the time of the adjustment. This is beneficial to them so they reward you for
lessening this risk by offering you a lower rate to allow them this flexibility at a later date.

OK, so on March 1, 2005, you sign your loan docs where you have elected to go with the 5 YR
ARM at 5.25% vs. the 30 YR FIXED rate of 5.875%. The ARM you have chosen will adjust once
yearly.

For the first five years your rate is going to be FIXED at 5.25%. Your rate can go no higher and
can go no lower. For these 60 months, your payment will NOT change.

On March 1, 2010, your 5 YR ARM is going to adjust. It is going to adjust on this day and every
March 1 thereafter for the next 25 years. Your rate is no longer guaranteed at 5.25%. It is now
based on the INDEX plus the MARGIN.

What are the index and margin?

This is where LIBOR, COFI, CODI, CMT, and MTA come in. These are the most popular of the
indexes.

LIBOR - London InterBank Offering Rate is the average lending rates from a number of major
banks based in London, England. It is commonly used as an international interest rate index.
LIBOR is influenced by changes in both the Bank of England’s official rate and the targeted fed
funds rate.

COFI - Cost of Funds Index is a very stable index that is based on the average cost of deposits
and borrowings for savings institutions in the Federal Home Loan Bank’s 11th district (which
consists of California, Arizona, and Nevada). Tends to lag behind changes in market interest
rates.

CODI - Similar to COFI but it is based on Certificate of Deposits. Since it is based solely on
deposits it responds more rapidly to changes in market interest rates than a COFI.

CMT - Constant Maturity Treasury Index is the weekly average yield on the United States
Treasury securities adjusted to a constant maturity of 1 year. Since this index is a monthly
average of the one-year CMT yield, it is less volatile than daily interest rate movements but more
volatile than other indexes such as the COFI.

MTA - This is based on the same securities as the CMT but it is based on annual yields rather
than weekly yields. As a moving average going back over the past year, it is more stable than an
index base solely on current values.

Are you completely lost yet? It can be very confusing.

You have probably heard of the LIBOR. The LIBOR has become the Index of Choice in the last
few years because it is comparatively low and has been pretty stable. It is also tied to the major
banks of London, which means it is not directly tied to the U.S. economy. I would estimate that
70-80% of ARMs today use the LIBOR index.

OK, so it’s March 1, 2010, you had a 5 YR LIBOR ARM, and you know it is going to adjust to
whatever the LIBOR index is on that day. Let’s say the LIBOR index is at 3.10 on March 1, 2010.
You now need to add in the margin. Let’s say your margin is 2.25%.

The margin is what lenders add to the index rate to determine your new rate. The amount of the
margin can differ from one lender to another and from program to program, but it is usually
constant over the life of the loan. If your margin is 2.25% in the loan you signed on for on March
1, 2005, it will likely stay there for the next 30 years.

On March 1, 2010 you add the LIBOR index as it is on that day in 2010 of 3.10 and you add that
to your margin, that will remain consistent, of 2.25% and your new rate on that date will be 5.35%.

On March 1, 2011, you will do this again. On March 1, 2012, you will do this again. This will
happen every March 1 of every year until the 30 year loan is complete.

Most ARMs have a life cap. The rate cannot go over a certain cap over the life of the 30 tear
loan. This cap is usually of 5 or 6 points ABOVE the start rate. If you started with a 3 YR ARM at
5.000% and the cap is 6, the bank can raise the rate no higher than to 11.000% over the life of
the loan if necessary market conditions call for it. Even if rates were at 13.000%, your loan can
go no higher than 11.000%.

Recent studies have shown that most homeowners either refinance or sell their home within 5 to
7 years. Therefore, most buyers who opt for a 7-year ARM will never even experience
adjustable-rate payments.

Most ARMs also have yearly caps of usually 1 or 2. This means that the loan cannot go up any
higher than 1 to 2 points in any 12 month period. If it started at 5.00%, even if the index +
margin adjustment calls for it to go to 8.00% and the yearly cap is 2, it can go no higher than the
2 to 7.00% that year.

Most of these loans can also be done as interest-only for a fixed period of time. Choosing
interest-only options does not change the way the ARM adjusts. Sometimes the interest-only
period will even exceed the fixed period. Example: Some 5 YR ARMs allow for the interest-only
option for the first 10 years.

Be very careful. Your payment will increase substantially when the interest-only period is over. If
your rate has increased substantially because of adjustments you may now be in a house that
you simply cannot afford. This is a topic for another time.

Before you choose the ARM that is right for you, first determine how long you want your loan to
be fixed for, next find out what indexes your lender has that loan available in and then find out
what the margin is on each. Just because the COFI is at 2.00 today and the LIBOR is at 3.00
does not necessarily mean that the COFI it is better for you. The margin may be higher on the
COFI-based ARM and none of us can predict where any index will be five years from now on your
five year ARM.

Many different websites can show you the history of each index. It is definitely worth
consideration before choosing your ARM program.

Congratulations!! If you now completely understand this newsletter, I would bet that you now
know more about this than half the lenders in your city!!!!

Aaron Gordon is a top-producing Senior Mortgage Consultant with Realty Mortgage Corporation in Las Vegas, NV. His monthly newsletter currently goes out to over 10,000 real estate agents and other professionals in the Las Vegas area. He helps over 200 families each year with their mortgage needs in many different states. He can be reached by email at aarong@realtymortgage.info or you can see more newsletters at http://www.aarongordon.net

Sick of all the conflicting ideas about how to lose weight? It’s no wonder most of us are still overweight, we don’t even know where to begin!

Here are 5 proven method to shedding the excess fat once and for all:

#1 - Avoid processed starches and sugars

Processed starches such as white bread and refined sugars found in most “low-fat” foods contain very little nutritional value. They are loaded with empty calories which will pack on the pounds in no time.

#2 - Eat foods low on the GI scale

Most high GI foods will spike your blood sugar level, prompting your pancreas to release insulin. When insulin is released, it suppresses the hormones glucagon and growth hormone. These are the hormones that cause your body to burn fat! Check out http://www.glycemicindex.com for foods low in GI.

#3 - Eat more “healthy fats”

Increasing your intake of healthy fats will give you a boost in energy levels, improve your mood, strengthen your joints and improve your skin. And if less than 10% of your daily calories come from fats, your bodys starvation mechanism can be triggered… which is the absolute worst thing for fat loss!

#4 - Eat 4-6 times a day (no, seriously)

Many people ask me why you have to eat more regularly. The reason is simple - so your body doesn’t go into starvation mode. The more often you eat, the faster your metabolism becomes. I find it absurd that this one fact is ignored by almost every fad diet plan today.

#5 - Avoid carbs at night

Eating carbs at night promotes fat storage while you sleep. Instead, replace those starchy carbs with fibrous carbs such as a green veggie salad.

There you have it, follow these five simple steps and you’ll be well on your way to achieving the body of your dreams. The next step is to incorporate an exercise and strength building program that will shed those excess pounds at lightning speed, and keep the fat off for life!

Click this link to learn of a
simple paint-by-numbers weight loss plan that will melt pound
after pound of excess fat from your body. Hint - unlike popular fad diets, it’s designed to work *with*
the human body instead of against it.

Discover more on The ANTI-Diet Plan!

Do your children excel in school? Have they mastered the skills of their grades? Should they skip a level? If a child is out-performing other children, should they go forward in their schooling faster? These questions may be hard for a parent to answer.

However, according to child development experts, the answer is usually no. Too often parents are so flattered by their child’s advanced skill level that they want to move them through school faster. This idea plays more toward the parent’s sense of “raising their child right” than interest in the child’s well-being in the long term. Unfortunately, quicker is not always better. A child may advance intellectually, but will remain on the same social level as his/her same-aged peers. Allowing them to stay in their grade will increase the opportunity to develop friendships and gain communication skills that will benefit them throughout their life. Children understand, communicate, and interact differently at each stage of development. Only with time can children polish those skills. Children also develop different interests as they age. There is a difference between children in 1st grade and second, although it might not be evident at first glance. Social interests also change as children improve physical skill. Fourth graders want to play with children who are at their same level of competency in games and activities. If a child moves through school quickly, they might struggle to develop friendships. Social interactions play a large part in a child’s self-esteem and development. For these reasons it is in a child’s best interest to stay at their grade level and instead be challenged with content appropriate for their age.

Helping a child to advance academically is a good thing, if it is done appropriately. If you have a first grader who consistently earns good marks in subtraction you may be tempted to move on to multiplication. A better choice is to expand their knowledge within the realm of subtraction. Numbers do not mean anything until they are applied to real life, situations, and problems. Advance the thinking within subtraction. This helps children not only increase their mathematical skills, but reach a deeper level of understanding. Multiple-step problems, word problems, and puzzles challenge different parts of the brain and increase comprehension. These exercises provokes deeper thought, and requires children to think in steps, expanding their understanding of what subtraction is. Because they will develop life skills they will be more useful as contributing adults to society. They can do more than just spit out numbers and facts, they can apply it. This is a powerful skill.

There are many puzzles that will challenge the advanced child. One example is Sudoku. There are many levels in the game and all ages can play. Other puzzles include: riddles, anagrams, doublets, picture puzzles, chess problems, math puzzles, and logic puzzles. Is one puzzle better than another? No. Puzzles should be geared toward the interest of the child. Tastes, skills and interests form at a remarkably early age. Use your child’s interests to enlarge and expand their thinking. By cultivating interests and introducing puzzles your child will be successful academically and socially.

Emma Snow works a pragmatic puzzler at the Puzzle Place http://www.puzzle-place.net and Chess Strategies http://www.chess-strategies.net leading puzzle portals.

Do you ever find yourself wondering where those disturbing feelings of anxiety, depression, anger and fear come from? Have you ever wondered how they are able to take over your whole life, sometimes in less than a minute, without you even knowing how or why?

This article is going to shed some light on exactly how these unseen forces work within each and every one of us. We are going to uncover the root of the problem, and see for ourselves what the cause of all our pain and suffering really is. This is a key step if you wish to be live without the stress and suffering you have now, because only after you see clearly what is hurting you and how it operates, can you be free of it. This is a fact.

So, let’s take a look into what causes all the misery we experience, so that we can identify it in our own lives and begin to free ourselves from its harmful effects.

The root cause of all suffering in life comes from being identified with the mind and the thoughts it produces. This takes us out of the present moment- which is all there is- and puts us into the dream world of past and future.

Being identified with thoughts means that they take you over completely. You become them, in a sense. You see through their eyes and do their will. Depending on the nature of the thoughts your mind produces, this can make your life truly miserable. How do you know if you’re identified with a thought? Simple… every time you feel any sort of negative, unpleasant emotion is a signal that you are living from a thought and not reality.

Being identified with thoughts deaden your ability to see life as it is. You put more faith in your mind’s convictions and projections than you do in the reality of the present moment. This basic flaw in our perception is what gives rise to every bit of suffering, anxiety, fear and anger we experience in our life.

We need to begin the process of becoming aware of the fact that we are identified with our thoughts most of the time. We don’t just use our mind for practical purposes and then set it down. Most people’s minds harass them all day with pointless, repetitious or painful thoughts. The problem arises when thought become compulsive– meaning we can’t stop if we want to.

See if this is true for you. Can you stop thinking anytime you want to? If so, for how long? The fact is that most people are almost totally identified with their mind and don’t even realize it.

The quicker you see the strategies your mind uses to keep you its prisoner, the closer you will be to a stress-free life. Your mind will have no power over you whatsoever once you uncover its sneaky tricks.

Become a detective and watch for clues into the workings of your own mind. See how it causes you pain and distorts reality. Doing so will prove to be the most profitable activity you have ever pursued.

Do you long for an unshakable peace and command that never leaves you… For happiness and joy in all moments of your life? If so, this amazing, life-changing program is exactly what you are looking for. I personally guarantee it! Discover what steals peace and how to stop its unseen activity with Secrets of Being Unstoppable, by Guy Finley. Don’t wait… click here now: http://seekingtheextraordinary.com to change your life today.

In order to get the most value out of interactive web conferencing sessions try the following simple steps in order to keep it affordable.

1. To save money, save time. A well-planned conference with an agenda is the conference that doesn’t use up a lot of time answering questions over what is going to be covered or what has already been discussed. If someone joins in late and it will take more then a few minutes to catch them up to speed, either send them the notes of the meeting later, or hold a separate phone call with them at a later date.

2. Minimize unnecessary services. If recording the conference isn’t all that necessary, don’t bother signing up for a service that offers the option to record it. While, recording a session is a useful tool, it certainly isn’t a necessary one. Make sure everyone is prepared and designate someone to keep track of notes and the minutes of the meeting. Other premium services like video conferencing may also add to the expense. If video isn’t necessary or advantageous, leave it out.

3. Search the Internet for free services. To keep interactive web conferencing cheap look for a service provider that adds in a lot of extras for “free”. That usually means that there is a higher flat rate, but factoring in the value of the extras can really add up to big savings and an affordable price.

By just following these simple steps here, an affordable interactive web conferencing call can be had. An important service like web conferencing doesn’t have to be expensive. In fact repeated use could potentially cost more money unless efforts are made to ensure that money is saved. Interactive web conferencing is already a cost saving tool because it helps cut down on travel time and expense; it increases communication between team members and offices. Web conferencing certainly isn’t going to be free, but by planning ahead and looking for ways to save money interactive web conferencing can be more affordable.

Dean Iggo is the webmaster of teleconferencing services a website providing web conferencing solutions, resources and information on the best services and providers for you and your company.

There are wrinkle creams that work, and work very well.

In fact, the breakthrough wrinkle cream products, have surprised even dermatologists, and have had many women experience impressive results.

One of these creams is Hydroderm Fast Acting Serum.

You see, Hydroderm is a wrinkle cream that has some unique effects that turn back the clock very well.

In this article, we’ll look at how Hydroderm works to reduce wrinkles, and have your skin looking younger.

So how does Hydroderm work?

This cream works in 2 main ways:

1. Hydroderm is able to deliver collagen molecules deep into the skin layers.

See before, in order to get collagen into the skin layers, you had to have collagen injections which were costly, painful and invasive.

But Hydroderm has patented their cream which is able to deliver collagen via using a cream.

And collagen is the skin protein that decreases with age and this reduction is a cause of skin aging.

2. Hydroderm also contains a special protein serum called ‘Vyo-Serum’ that tightens and lifts the skin surface immediately.

This causes the smoothing and a lift of skin to make the skin even more youthful.

And when you have these 2 technologies working together, the results are most impressive.

Be sure that when you are checking any wrinkle cream to look at these criteria:

1. Their customer reviews

2. The before and after photos

3. The companies explanation of how their product works

In fact, you don’t really need to know how Hydroderm works in order to realize how effective it is.

So there you have it.

This is how Hydroderm has caused many women to be so impressed.

You know, it’s wonderful having youthful looking skin.

And so many women are now looking 10 and even 20 years younger thanks to this wrinkle cream that works - and yes, many of them want to keep this a secret!

So remember to take good care of your skin and use a great wrinkle cream.

By doing this, you’re helping to ensure that your skin looks and feels great for the years to come.

So go for it and get great skin.

Want to learn more about wrinkle creams that work? Marcus Ryan helps you to find the wrinkle creams that gives results, including his review on Hydroderm wrinkle cream and other top rated wrinkle and anti aging cream products. Plus get free wrinkle cream samples to see the results for yourself!

Keep reading to gain instant access to an effective natural snoring remedy which has successfully cured the snoring of over 100,000 sufferers.It is possible to naturally cure snoring with a natural snoring remedy. Snoring can actually result in life threatening problems. This article will discuss why it’s possible to naturally cure snoring with a natural snoring remedy. Keep reading to get instant access to a natural snoring remedy at a price you can afford in the privacy and comfort of your own home.

Snoring can have an impact on your life with family members. You and your family members will all develop erratic sleeping patterns as a result of your snoring problem which ultimately means that all of you will be more prone to irritable mood swings. For this reason it’s absolutely critical that you look to naturally cure your snoring with a natural snoring remedy before it’s too late.

As well as a natural snoring remedy, there are many other so-called snoring cures on the market. However, what works for someone you know may very well not work for you. To play it safe (and of course within your budget) consider a natural snoring remedy to naturally cure your snoring condition permanently.

There are various home remedies for snoring made from natural enzymes and herbs which reduce the nasal congestion. This natural snoring remedy also provides more room for air to flow through the nose and throat. Pills are not the only natural remedy for snoring. There are also nasal sprays and nose drops that are used as a natural remedy for snoring.

The natural remedy for snoring is found to be the more popular choice for snorers and their sleeping partners. It’s possible to naturally cure snoring without suffering from any adverse side-effects.

Of course other than a natural remedy for snoring there are other snoring products and devices that may look promising but chances are we will never know how effective and safe those products are as compared to a more natural remedy for snoring.

Keep reading to gain instant access to an effective natural snoring remedy which has successfully cured the snoring of over 100,000 sufferers.

Copyright 2007. Wait! Now is the time to stop your snoring and get your life back! Over 100,000 customers have cured their snoring permanently with this powerful natural snoring remedy. I can show you how to
banish your snoring forever in as little as 7 days. Let me show you how to stop your snoring for life without expensive surgical procedures, medications, over-the-counter products, or ridiculous devices. I guarantee I can stop your snoring. Snoring is a big deal and you and your family don’t have to suffer anymore. Stop your snoring now at http://www.stop-your-snoring-now.com and live your life free from snoring today with the best remedy to stop snoring permanently!

There are many things to consider when choosing bible baby names. Are the biblical baby name meanings important to you and your family? Do you combine that with someone you respect from an old testament story? Do you want uncommon baby names, or something a little more popular to today’s culture? If you pick one of the Christian baby names that are a little “weird” today, will your shorten it to an acceptable nickname? One thing’s for sure, when you are seeking out bible baby names, you need to do your research!

Naming your children can be a blast, and it’s one of the first things expectant parents think of once they’ve found out they are pregnant! Fun, fun, fun! I personally enjoyed choosing our children’s forenames based on the significance of the meaning. I have a wonderful friend who likes to choose based on their favorite bible heroes. Her latest little one is an Abigail (king David’s wife; which means “father of exaltation”). The perfect scenario would be to find a great hero of the old testament or new testament with a strong definition, such as “David” who was the greatest king of Israel and the definition of his name is “beloved”.

There are a couple things about choosing forenames from the bible that can be tricky. For example: the person and their accomplishment versus their name definition. For instance, Mary, the Mother of God had such an impact (an understatement) on generations to come, but her definition is “bitter”. Or Job, one of the greatest heroes of the faith, means “afflicted”. Another touchy subject is that the chosen name would not be popular in today’s society. For example, you love the powerful definition of “God gives strength”, but would you really call your new bundle of joy “Hezekiah”? Well, it would definitely be one of the most unique, uncommon baby boy names in his class! If you’re really passionate about a definition, maybe you could shorten the name into an acceptable nickname, just a thought!

On the other hand, maybe you don’t want a bible hero. Maybe just the meaning is important to you (that was the case with us). You could choose a modern name like Ian which is Scottish and derived from “John” with a strong biblical definition of “God is gracious”.

I really enjoy going through the following naming game with my family:

Hi, I’m “God is my oath”, this is husband “God is my judge”, my daughter “little woman who is like God” and my son “wise, God is my judge”, nice to meet you! There are times that I tease my daughter should have been called “little woman who is a great listener”!

Whatever route you choose, have fun with the process. Browse these Christian meaning of names lists , buy a baby naming book, discuss it at the park or over dinner. But do it before you go into delivery! You don’t want the stress of what to put on the birth certificate at the very end.

Oh, and here’s a thought, if you find a name with a great definition, put it on the birth announcement … your family and friends will enjoy it! Also, tell them WHY you chose to use bible baby names (for King David) , and keep your announcement … it will be a wonderful keepsake for your scrapbook!

For more baby naming articles, or name meanings, visit us at http://www.best-baby-names-list.com!

Nowadays among women,the competition is fierce to look and feel at your best.This can put a lot of pressure on those of you who feel left out of the race,maybe due to a pregnancy or some other unforeseen events that leave you constantly battling with the bulge.

It is little known that there is a very good biological fact for women always having to defy the law of gravity and a craving for just one more bite of that cake.

First off,lets ask ourselves this question - are men affected as much by the weight loss/gain problem as women? Well,no,not strictly,so why would that be? What are the differences between the male and female body?

Here is your answer and also the reason for your plight - obviously the female body has to constantly be ready to supply energy to a possible extra little person,a child.In other words,your body and brain are conspiring against you,so as to be prepared to provide for a possible hitch hiker.This is the reason that your body is storing away little deposits of high calorie fat and also the reason that you try to avoid mirrors at all costs,miss trips to the beach and can never fit into that beautiful dress you bought yourself as an initiative to lose those pounds.

Ok,so what i hear you say,well,now that you know the mechanisms behind your suffering,you can now get on your way to conquering them.Learn how to avoid those trips to the fridge to feed those conspiring against you and finally look and feel your best.

“To defeat your enemy,you must first understand them”
I will be submitting more articles on this subject on the coming days and will go into more detail on the subject.

I hope you have found this article educational.
For more information & a recommended weight loss ebook please go to - http://www.self-help-ebook-reviews.com/burn-the-fat-feed-the-muscle-reviews.html

I hate getting into technical mortgage topics and this one is even confusing for
mortgage professionals.

I got so many emails asking me questions about Pay Option mortgages that I decided to go ahead and
tackle the issue. Hang on tight!!!

You have probably seen the ads on TV. “Cut your mortgage payment in HALF!!!!” Get a $200,000 mortgage for under $400 per month!!”

It almost sounds too good to be true!!!!

You have probably seen the ads in the newspaper. Even more creative, they
sound like the ANSWER to your home-buying DREAM!!

“1 Month Option ARM”, “Smart Choice,” “Smart Pay,” “Pay Option ARM,”
“Pick a Payment Loan”, “Cash Flow Option Loan.”

These are all simply well-branded names for what is known as a “flexible
payment ARM.”

They may have different rules but nearly all share the same main premise.
Lowest payment possible.

Even though you save money on monthly mortgage payments with this type of
loan, you can also lose your some of your equity.

Here is how they work. Once again, each program has slightly different
characteristics. I will discuss the characteristics of the ones of which I am most
familiar.

Let’s say you borrow $300,000. Each month you will get a mortgage statement
that gives you the choice of up to 4 different payment options. Each month YOU
choose the payment you want to make.

For example:

OPTION #1 will be the minimum payment.

This will be the lowest payment based on the Start Rate of your ARM. The first
year this option will be a “teaser rate” that is good for between one to 12 months
and be the one like 1.000%. This minimum payment will change each year.

This is the one to be careful of. Making the minimum payment each month will
very likely mean you will end up owing more than you borrowed.

When your loan is structured so that you can actually OWE more than you
borrowed it’s called NEGATIVE AMORTIZATION. More on this below.

OPTION #2 will be an interest-only payment based on the ARM of the program.

The program is usually is tied to very short-term Adjustable Rate Mortgage, like a
One or Three Month ARM. Although you get to make an interest-only payment,
plan on it adjusting regularly.

OPTION #3 will be a 15 year payment and will pay off your loan as if it were a 15
year payment schedule.

OPTION #4 will be 30 year payment and will pay off your loan at the “Fully
Indexed Rate”

Sounds great but confusing, right?

You should be confused. These programs are very complicated, which creates
an even greater danger that borrowers will take them without fully understanding
the risks.

I have had many clients come to me for refinances who are currently in these
programs from another lender. Not a single one understood the program and
they had been in it for some time.

The problem is borrowers who don’t understand these programs may someday
be in a mortgage with a payment they simply can no longer afford. They hear
“1.000%” and yell, “sign me up!!!”

The scary about these programs is the negative amortization part that the
lenders do not quite explain properly.

Let me tell you how it really works so you can see the pros and cons.

Let’s say you love Option #1 and for the first 12 months you pay the teaser rate
of 1.00%. On a $300,000 this is around $965 per month. Sorry you can’t do this
as interest-only.

When you locked the loan you did this using the Treasury as the index, and the
program has a 2.75% margin.

The margin is the single most important thing to look at when selecting a Pay
Option program. It is usually higher than the rate itself and the lender can
sometimes adjust this for you.

Let’s say when the bank sets your rate, the Treasury is at 2.350 that day. Add
the margin of 2.75% and this means your minimum payment rate is 5.100%.

The interest-only option for the same $300,000 loan would be $1275.

However you decide to take Option #1 that month and pay the 1.000% teaser of
$965. This means you would have “skipped out” on $310 for that month.

Banks don’t like it when you “skip out” so they simply add this to the backend of
your mortgage. You now owe them $300,310. $310 more than you
borrowed….negative amortization.

And this can go on and on.

They usually cap this at between 115-125% of the original loan amount. This
means that you cannot be into them for more than $345,000 on a loan you took
for $300,000 or they will “recast” or refigure the entire loan.

Did you get that? You borrowed $300,000 but if your loan GROWS to $345,000,
they get to automatically recast your mortgage. A “do-over” if you will. Only you
don’t get another 30-year do-over. You get whatever time you have left with a
new, much higher loan amount.

So you bought a $300,000 Pay Option mortgage amortized over 30 years with
four great payment choices but after four years they re-casted it when you got
$45,000 in the negative.

So now you get a brand-new $345,000 Pay Option mortgage with only 26 years left to pay. You can imagine what that does to your new payment.

Negative amortization can be offset by home-price appreciation. That’s another
reason why it was so popular when the market was hot.

However, if home prices drop, as they have recently, you could find yourself owing more than your home is worth.

It is far too risky for buyers to stretch to buy a home using a 1.00%
mortgage, and then make a habit of paying only the minimum amount due each
month.

Are you still with me? Barely? Well, here is where it gets really complicated….

The minimum initial payment is calculated at the interest rate in month one, and
can then, depending on the program, rise by as much as 7.5% of the start rate a year.

This means if the initial rate is 5.000%, it cannot go higher than 5.350% that year.
7.5% of the start rate, not up 7.50%.

That is the yearly cap, so you really can get hurt too bad by the payment the first few years.

While the interest rate jumps in month two, the initial payment holds for the year.

In the four years that follow, each minimum is 7.5% higher than the minimum in
the preceding year. The rate in month one therefore determines the minimum
payments for the first 5 years.

That sounds pretty good. Sounds like you can’t get crushed.

However, the rule that the minimum payment rises by no more than 7.5% a year
usually has two exceptions.

EXCEPTION #1: Every five years the payment must be “recast” to be fully
amortizing. This means if you borrowed $300,000 and you now owe $315,000
because of negative amortization, the bank gets to recalculate the minimums to
help them get caught up, like described above.

They will then recast it over the 25 years remaining regardless of how large an
increase in payment is required. At some point you have to pay
off your mortgage.

If this happens your payment is going to increase substantially, even the
minimum payments. Your loan is for 30 years and at some point you
have to pay back the principal.

Once again, if interest rates skyrocket, but you pay the minimum, you may be
going further into the negative. If they recast your loan, you
may no longer even be able to afford the “minimum” and be forced into a
refinance to keep your house. Or you may just lose it.

EXCEPTION #2: The loan balance cannot exceed a negative amortization
maximum. All of these programs have negative amortization maximums, which
range from 110% to 125% of the original loan balance.

If the balance hits the negative amortization maximum, the payment is
immediately raised to the fully amortizing level. Once again, the bank
does not want to be too far upside down. In fact, these programs usually require
a down payment of no less than 5%. More like 20% if you go with Stated
Income.

Either the recasting of the loan or the negative amortization cap can result in
serious payment shock.

I don’t want to simply paint these programs in a negative light. They have some
very real positives as well.

The main selling point is the low payment in the early years. If you plan on only
having this loan for 2-4 years it may the program for you.

However you may be able to accomplish the very same thing with a 1, 2 or 3
year interest-only ARM and not have to deal with the confusion.

Some borrowers find it an excellent way to manage money because it allows
them flexibility.

Borrowers who work on commission, or who have a lot of assets but minimal
cash flow, may appreciate the pay option programs.

It allows them to make minimal monthly payments when the cash flow is lower
and when the money starts rolling in, they can pay back deferred
interest and pay down the principal balance.

These programs are also great if you are in a transition period that will mean you
will make more money in the near future. For example, you
started a new job and know that you are getting a pay increase in the next year
or so. This allows you to get in the house you want, make a very low payment
for a few years, and then start catching up.

It’s also a great program for disciplined borrowers who want to pay off a lot of
their equity.

I had one borrower who was selling his business and wanted to pay cash for his
home with the proceeds. The sale of his business was delayed so he did this
program until the escrow on the business finally closed.

I had another borrower who wanted to pay down his house by $200,000 in the
first two years. He did not want to pay any excess interest and
this was the best means for him to accomplish that.

These programs allow borrowers to buy more costly houses, or use the monthly
payment savings to pay down other debt, improve their homes, or to use their
money for other reasons. They also give you the ultimate control over your
mortgage payment.

However, as you can tell, they are risky.

The interest rate adjusts monthly, with no limit on the size of interest rate
changes except a maximum rate over the life of the loan. The maximums
generally range from 9.95% to 12.500%.

Almost all of these programs use rate indexes that adjust slowly to market
changes. COFI is one such slow-moving index, others are COSI, CODI and MTA.

The bottom line is this….

Don’t be tricked by a low initial rate, it holds only for one to 12 months. If you
can’t afford the house without the rate being 1.000%,
you are in too much house.

An $800,000 loan at 1.000% is only around $2573/mo. That opens the door for
a lot more people to buy $1 million homes. However can you
still afford the payment if adjustments cause it to go to $4000/mo. and beyond?

Like I said, you may be better served in a short term ARM that is fixed for at least
a couple of years and does not adjust monthly. One that also
won’t ever go into negative amortization.

If you are in love with this program, please feel free to go ahead. They are
extremely popular and people are asking about them all of
the time.

However, please make sure your preferred lender understands ALL of
the details. They all get the 1.00% part. That is what they are selling.

If your lender is not well-trained in this program and he locks your margin too
high or chooses a faster-moving index it will cost you $1,000’s yearly.

If you have to explain the program to him, find another lender for this program.
Your focus should be first on the margin, because that is what really determines
your rate.

Next look at the maximum rate. Look for one under 10.000%, if available to you.
Your third priority should be total lender fees paid upfront. Lenders know you
want this program and are willing to pay for it. They may
charge more than normal.

Shop for the program that works best for you. Right now we offer many different
variations.

Banks don’t re-price these programs every day with changes in the market, as
they do with other mortgages. Take your time and shop around. You don’t have
to worry about locking these rates. They rise and drop monthly with the market
so timing it doesn’t make much sense. You should shop margins and max rates
on these.

Finally, like all loan programs, these programs come with credit restraints. If you
are planning on going Stated Income, you probably need your credit score to be
over 680 to qualify. If you can go Full Doc, 620 will usually qualify you.

If this program really interests you, you will also want to consider the Secure Option ARM. Its the same principal as above, and a little safer.

The “natural” rate is fixed for five years and your option is to pay 3%-4% less than the natural rate. For example, if the five year fixed rate is 7.000%, you have the option of paying 4.000% for up to five years, or until the loan “recasts” at 115% negative.

Once again, for every $1 you pay under the 7.000%, that amount is added to the bank end of your loan and is negative amortization.

At the time of this newsletter, the average Pay Option ARM was taking about 32 months to recast, if you make the minimum payment each month, while the Secure Option is taking about 36 months.

Aaron Gordon is a top-producing Senior Mortgage Consultant with Realty Mortgage Corporation in Las Vegas, NV. His monthly newsletter currently goes out to over 10,000 real estate agents and other professionals in the Las Vegas area. He helps over 200 families each year with their mortgage needs in many states. He can be reached by email at aarong@realtymortgage.info or you can see more newsletters at http://www.aarongordon.net