ADJUSTABLE RATE PROGRAMS

ADJUSTABLE RATE PROGRAMS are not as scary as the old Variable Programs of years past. Rates are tied to indexes such as the T-Bill, Prime, London Interbank Offering Rate = L.I.B.O.R., Cost of Funds, and the 11th District, etc.

They take the index and add what's called a MARGIN. That percentage, is the Lenders overhead, costs and profit. They add the MARGIN and the INDEX together. Whatever your initial monthly rate, your EFFECTIVE RATE or what your rate is moving toward is the COMBINATION OF THE INDEX AND MARGIN.

Add the index [5%] and the margin [3%] = 8%, THAT'S THE FULLY INDEXED RATE. Although your start rate is only 3.5%, your rate, after the initial period [3,6, or 12 months] WILL ALWAYS GO HIGHER AND WILL EVENTUALLY EQUAL THE FULLY INDEXED RATE OF 8%.

This is where the word NEGATIVE AMORTIZATION COMES IN. If you take the wrong loan [and that's WHY YOU NEED TO CALL AN EXPERIENCED LOAN OFFICER AT 1-800-782-LOAN] you could have a start rate of around 3%, which would automatically jump to close to 8% in 3 months, which would more than double your required payment. They do you a "favor" and instead of raising your required payment, they add it on to your loan. So your loan becomes like your Pennys Account if you only ever pay your minimum required payment. You never get the loan paid off.

FIXED RATE PROGRAMS

There are also hybrid programs that give you a fixed rate for 3, 5, 7, or 10 years, BUT BASED ON A 30 YEAR SCHEDULE. THAT'S TO YOUR ADVANTAGE, BECAUSE THEY LOWER YOUR MONTHLY PAYMENT, SOMETIMES BY SEVERAL HUNDRED DOLLARS.

During this REFINANCE BOOM many people are refinancing their homes every few months. LENDERS ARE OFFERING 'NO CLOSING COST LOANS', some of which are still available, but the rate is comparatively higher than a loan with costs. You need to call and compare.

Call 800-782-LOAN or in Alameda County, 510-791-7923.

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