Products - Pay Option Arms

Pay Option ARMS - 1 Month Pay Option Adjustable Rate Mortgage

Pay Option ARMS Program puts you in control of your home loan. This is how it works: Each month, you will receive an easy to read loan statement that lets you choose the payment amount that best suits your current financial needs. Pay the minimum amount to free up funds for other uses, or make larger payments for faster equity building.

Pay Option Arms Features

• A fixed interest rate for an initial 1-month period; thereafter the interest rate may change monthly
• A minimum payment amount that adjusts on an annual basis subject to a 7.5% payment adjustment cap
• A 7.5% payment adjustment cap limits how much the minimum monthly payment can go up or down from the prior minimum payment, except on the fifth year of your pay option arms and every five years thereafter*
• A lifetime interest rate cap that protects you by capping your interest rate.
  

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• Payment changes annually and is calculated using the initial interest rate for the first 12 month period.
• The minimum monthly payment is usually recalculated annually thereafter; and is based on the outstanding principal balance, remaining loan term and prevailing interest rate
• 7.5% Payment Change Cap limits how much this option payment can increase or decrease each year
  

(During the initial interest rate period, Option 1 represents a full principal and interest payment; therefore, Options 2 and 3 are not applicable.)


Pay Option 2: Interest Only Payment Option

At those times when the minimum monthly payment is not sufficient to pay the monthly interest due, you can avoid deferred interest by paying the minimum monthly payment plus any additional interest accrued during the month.

• Payments remain manageable, with no change in your principal balance for that month

(Option 2 will not be offered if the interest only payment is less than the minimum payment due.)


Pay Option 3: 30-Year Full Principal and Interest Payment

This is the fully amortized payment based on a 30-year loan.

• Calculated each month based on the prior month's interest rate, loan balance and remaining loan term
• Pays all of the interest due and reduces your principal, to pay off your loan on schedule
  

(Option 3 will not be offered if the full principal and interest payment is less than the minimum payment due.)


Pay Option 4: 15-Year Full Principal and Interest Payment

For faster equity build-up, quicker payoff and substantial interest savings, choose the largest monthly payment option.

• Calculated to amortize your loan based on a 15-year term from the first payment due date
  

(Option 4 will be offered only on the 30 or 40-year term and will cease to be a option when the loan has been paid to its 16th year.)
 

Pay Option Arms

Pay Option ARM programs offer you the most flexibility when qualifying for a mortgage, After you close you are in control of your finances when you start making payments. Manage your money with up to four payment options each month:

Minimum payment: The smallest payment to let you keep the most cash now.

• Choose this option to let you keep more cash now and keep monthly payments manageable. Generally, this payment changes annually and is calculated using the initial interest rate for the first 12 months. After that, the minimum payment is usually recalculated based on the outstanding principal balance, remaining loan term and prevailing interest rate.
• A payment cap limits how much this payment can increase or decrease each year.
• Interest rate adjustment feature and payment change cap, and certain payment options, can result in deferred interest. In the event your principal balance otherwise would increase to 125% (110% in NY) of your original loan amount; we will adjust your minimum payment amount immediately. This means that the minimum payment amount may increase more frequently than annually and the 7.5% payment change cap will not limit payment changes.

Interest-only payment Option: Keep payments manageable while paying all your interest.

• At those times when the minimum payment is not enough to pay the monthly interest due, you can avoid deferred interest with this option. You pay the minimum monthly payment and all additional interest accrued during the month. So you avoid deferred interest, and your payments are still manageable. Note: This option does not result in principal reduction.

Fully amortized payment: Reduce your principal and pay off your loan on schedule.

• It's calculated each month based on the prior month's interest rate, loan balance and remaining loan term. When you choose this option, you reduce your principal and pay off your loan on schedule.

15-year payment: Own your home twice as fast.

• If you want to build equity faster, pay off your loan quicker and save on interest, this is the option for you. It's calculated to amortize your loan based on a 15-year term from the first payment due date.

Advantages of Pay Option Arms

• Lower initial interest rate than fixed-rate mortgages
• Low minimum payment that adjusts annually
• 7.5% limit on payment increases or decreases
• Up to 40-year terms available to help minimize your payments

Pay Option Variations

• 15, 30, and 40 Year Terms
• 1, 3, and 6-month options: initial 1, 3, or 6 month fixed interest period, then adjusts monthly. Payment amount fixed for a year then adjusts annually.

Consider Pay Option Arms If:

• You want to minimize your house payment to pay off other debt.
• You want to control the amount of tax-deductible interest you pay each month.
• You want to maximize your buying power.
• Your income tends to fluctuate or you're confident that your income will rise over the years.

MTA-Index

The 12-month MTA-Index (Month Treasury Average) is based on the average annual monthly yields of U.S. Treasury Securities, (T-Bill) adjusted to a constant maturity of one year, as made available by the Federal Reserve.  This Index is determined by adding together the monthly yields for the most recent 12 months and dividing by 12. Because it's an average, higher yields in some months are offset by lower yields in others. This Index has averaged below 5% over the past 14 years.

If you add the current monthly MTA-Index to a Margin and it will equal the current monthly "fully-Indexed" Rate; the Margin never changes.  Over the last fourteen (14) years, with Mr. Greenspan continually increasing then decreasing the PRIME Lending Rate, the MTA-Index has averaged below 5%.  Therefore, if you're worried about the Life Cap (Index + Margin) going up to its max of 9.95% you need to understand how the MTA moves. E.g., if you had a 2.0% Margin, the MTA-Index would be capped at 7.95%, or 9.95% - 2.0% = 7.95%. Again, this Index has averaged below 5% over the past 14 years. When Fixed-Rates start to drop so does the MTA-Index.  Moreover, when the Fixed-Rates start to move higher, the MTA-Index moves slightly higher, and more slowly.  

 

11th District Cost of Funds Index (COFI)

This index reflects the weighted-average interest rate paid by 11th Federal Home Loan Bank District savings institutions for savings and checking accounts, advances from the FHLB, and other sources of funds. The 11th District represents the savings institutions (savings & loan associations and savings banks) headquartered in Arizona, California and Nevada. Since the largest part of the Cost Of Funds index is interest paid on savings accounts, this index lags market interest rates in both uptrend and downtrend movements. As a result, ARMs tied to this index rise (and fall) more slowly than rates in general, which is good for you if rates are rising but not good for you if rates are falling.

 

Certificate of Deposit Index (CODI)

The Certificate of Deposit Index (CODI) is the 12 month average of the monthly average yields on the nationally published 3-Month Certificate of Deposite rates. Information on monthly yields on 3-month certificates of deposit (secondary market) is published by the Federal Reserve Board. Lenders calculate the average by adding the 12 most recently published monthly yields together and dividing the result by 12.

 

Cost of Savings Index (COSI)

This index is the weighted average of the rates of interest on the deposit accounts of the federally insured depository institution subsidiaries of Golden West Financial Corporation (GDW). All of the depository institution subsidiaries of Golden West Financial Corporation operate under the name World Savings. World Savings receives money from consumers in the form of deposits and lends money as home or other loans. The interest rates in effect on these deposits are the basis for the COSI index. It is not based on actual interest paid, but rather the weighted annualized average of all interest rates in effect on World Savings deposit accounts on the last day of each month. The COSI adjusts monthly and has a one-month reporting lag. It is computed on the last day of each calendar month and is announced on or near the last business day prior to the fifteenth day of the following calendar month.

 

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