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How Significant Can The Cash Flow Savings Be?
Our experience in working with hundreds of clients is that the prospect of saving $50 or even $100 per month just doesn't help that much in terms of reaching their most important financial goals and objectives.
Many of the Option ARMS have minimum monthly payments that start as low as 1.00%. Minimum monthly payments are typically 35% to 45% lower when compared to more provincial mortgage plans.
This table provides perspective about potential savings derived from making the minimum monthly payments as compared to an amortizing mortgage loan at a rate of 5.50%.
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Loan Amount
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Note Rate
Option ARM
1.00%
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Note Rate
Provincial Loan
5.50%
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Monthly Cash Flow
Savings
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$200,000
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$644
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$1,135
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$491
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$250,000
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$804
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$1,492
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$615
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$300,000
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$964
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$1,704
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$740
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$500,000
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$1608
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$2,839
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$1,231
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Anyone selecting the Option ARM home loan product needs to be fully informed about all of the underlying factors associated with this product. The minimum payments will increase each year by a modest amount over five years. This article has consistently referred to the "Minimum Payment". It is important for anyone considering the Option ARM to know how the underlying interest rate on the loan is determined and how frequently the actual interest rate on the loan will be adjusted. The underlying interest rate can result in interest that is actually higher than the minimum payment. When the interest that is due is higher than the minimum payment, the difference (or, deferred interest) will be added to the principle balance on the loan which will increase the amount due.
The potential for accruing deferred interest on the home loan seems counter-intuitive to most folks. The importance of having this option is that it gives clients the ability to retain control of their cash flow rather than paying some bank or mortgage company. By conserving (not consuming) the monthly cash flow savings, clients are able to pay themselves first.
Read More
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Contact Information
Nations Home Funding
4700 Falls of Neuse Road
Suite 120
Raleigh, NC 27609
919-877-0022 Ext 204 (p)
919-877-9505 (f)
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