5 Thoughts on What is Pick a Payment Mortgage Loan?
  1. Reply
    dmckinner
    February 1, 2014 at 6:30 am

    No, its totally different!! The pick a pays have become an animal all their own as of late. Most of them have several different payment options which include payments of:
    1- negative equity(in other words, you arent even paying all of the interest on a monthly basis. Your loan amount is going up every month due to this!
    2- interest only, which is where your principle balance stays the same and all that you are paying is the accruing interest.
    3- p and I, this option is where you are actually paying a percentage towards your principle as well as all of the accrued interest.

  2. Reply
    bianca
    February 1, 2014 at 7:23 am

    pick a payment mortgage is the mortgage, that you choose how much per month you want to pay. they give you minimum payment option- between 1-3%, intrest only payment, fully amortized payment for 30 yrs loan and 15 yrs payment. you can switch your payment every montch if you want, but the rate of this mortgages change monthly. your minimum payment stay fixed for 12 mts and after that it will increzse7.5% of the payment ammount. you can keep paying minimum payment only, but you will have negative ammortyzation (your minimum payment will not cover intrest of your mortgage and whatever you are short they will add to your loan ammount- you borrow 200000$ and after 1 year keeping paying minimum payment you owe 210000%, this just the example only.
    there are pluses and minuses of this loan.
    if you are not working on fixed income- this is good loan to use, because if you short on cash-you pay your minimum payment.
    ifyou want to pay your mortgage, and look for security – don’t use ,becouse your payment and rate is not fixed .
    i like this mortgage ,because i prefer if money stay in my bank , not with the lender, because if you want to touch your money from the house- you have to pay closing cost.
    if i have regular mortgage, whatever principal i pay down , and i want to refinance, i ‘m losing this ,because i have to pay closing cost ( if you don’t pay closing cost in cash, those cost will be rolled in your new loan ammount)
    don’t keep this loan for to long- up to 3 years. you don’t want neg. ammortization eat all the equity you have in the house.
    with this kind of mortgage maybe you can afford to have to 2 houses and have some cash flow from rental property.
    i did this and i was able to pay for my daughter college- if i will not buy another house, i will never save that much money to help her. this program is not for everybody , but if you not taking risk in your life- you not moving anywere, right?

  3. Reply
    Searchlight Crusade
    February 1, 2014 at 8:15 am

    This loan is the most dangerous thing out there in the real estate world. There *ARE* situations where it is appropriate, but they are roughly 100 times less common than the number of these loans out there.

    Basically, it has a very attractive minimum payment, but the real rate you are being charged is month to month variable, and starts at a rate 1 to 1.5% higher than thirty year fixed rate loans for comparable credit.

    Unless you happen to have some equity that you can’t get right now, and just need some time to pay off other bills, it’s unlikely this loan is for you. It should *NEVER* be used for the purchase of a primary residence.

    Much more here:

    http://www.searchlightcrusade.net/posts/1126189276.shtml

    http://www.searchlightcrusade.net/posts/1150813093.shtml

    http://www.searchlightcrusade.net/posts/1151101964.shtml

    http://www.searchlightcrusade.net/posts/1154808089.shtml

    http://www.searchlightcrusade.net/posts/1155049674.shtml

  4. Reply
    NICHOLAS M
    February 1, 2014 at 9:00 am

    it’s the worst loan program ever for borrowers. you get a low teaser rate but these are basically like 1 or 3 month adjustable rate mortgages. Your true rate is usually at least 1-2 percent above what you would have as a normal 30yr fixed loan. hence if a 30yr is at 6.50 now your true rate is 7.50 or higher. You’ll have the option of paying that initial rate for some time to come but you’ll be loosing more and more equity in your home each month.

    These are good for payment flexibility if you need it because of seasonal income. The only individuals that make out good on these are mortgage brokers because lenders pay them such a premium for a higher market rate and if there is a prepay on your loan and trust me your broker is going to throw one on there they’ll be making 3-4 points on the loan while you’re locked into a 1 month arm for the next 3 years that for the last 2 years has only adjusted upwards.

  5. Reply
    Darren Meade
    February 1, 2014 at 9:54 am

    Hello –

    The pick a payment and a Adjustable Rate Loan are often the same.

    World Savings actually first termed the phrase pick a payment. Essentially you can make the low minimum payment which is usually between 1% – 2.25% or one of three other options.

    ( Interest Only, 15 Year Fixed or 30 Year Fixed) They also have recently come out with a hybrid Arm.

    When Alan Greenspan says that Adjustable Rate Mortgage (ARM) loans were a better choice than fixed rate mortgages, people start to pay attention. This also is what launched the Pick a Payment programs. So if ARM loans could have saved homeowners very significant amounts of money, why have Fixed-Rate products been the overwhelming favorite? The answer could be in the borrower’s lack of understanding, experience, or perhaps it is unjustified fear. Additionally, many loan professionals may not have adequately and articulately walked their customers through the pros and cons of an ARM loan. Once a borrower gains a better understanding of the proper way to make comparisons between loans that can adjust vs. those that are fixed, as well as the historical data, they may be much more open to selecting an ARM loan and reaping the benefits.

    There are lots of ARM loans to choose from and the features can vary quite a bit. The time that an ARM will remain fixed before adjusting and the factors governing the future adjustments, including the maximum amount the rate can change are important points to consider. The future adjustments are based on an index, so understanding what will cause the index to fluctuate as well as historical data on the index are both important to know. Let’s look at one popular type of ARM…a 5/1. This loan will remain fixed for the first five years but then adjust every year thereafter. A common misunderstanding that many consumers will have is that they feel they should only consider the 5/1 ARM if they plan to be in their home for five years or less. They often fail to recognize that the savings made in the first five years will offset future years of possible higher payments if the rate on the ARM increases. The best way to illustrate this is to look at a specific example. It is very common for the rate of a 5/1 ARM to be about 1% lower that the rate on a 30-year fixed loan. Assume the loan amount were $ 300,000. The 1% savings on the 5/1 ARM would save the borrower about $ 200 each month for the first 60 months (5 years). That would net them a hefty savings of $ 12,000 during that time. But most borrowers worry about what will happen after the initial period. If the $ 12,000 savings during the initial five years were just placed in a piggy bank, there would be enough funds there to draw upon to cover future worst case increases for the following 2-3 years. This assures the borrower of coming out ahead by selecting the 5/1 ARM for 7-8 years. Compare that to the average life of a mortgage loan, which is four years (because people will refinance or sell their home) and the odds become stacked in your favor that the ARM will save you money.

    Another strategy that can be used for the above mentioned example is to take the $ 200 monthly savings and use it to reduce the balance on the mortgage. The pre-payment of principal will have an even greater effect because the borrower is now skipping down the amortization schedule and paying more principal and less interest on each subsequent payment. After the initial 60 payments made during the first five years, the borrower would have approximately $ 17,000 more equity in their home because of the reduced principal balance. Because the borrower has this extra $ 17,000 in equity, they would be better off with their 5/1 ARM for approximately 10 full years. This is true if rates moved higher after the initial five years…even in the worst-case rising rate scenario. And, it just so happens that the National Association of Realtors states that the average period of time that people sell their residence is every 10 years.

    Another benefit when using the strategy of reducing the principal balance happens at the time of the initial adjustment. When an ARM loan adjusts, it essentially becomes a new loan where the payments are based upon the remaining years, the new interest rate and the remaining balance. Because the remaining balance is significantly lower when the savings are used to reduce principal, the payment can actually go down even if the interest rate adjusts higher.

    I Am Not a Gambler

    Many borrowers say they refuse to take a gamble on their selection of a mortgage product so they stick with a fixed rate. Well, like it or not, what ever their choice is, it’s a gamble. Selecting a fixed rate still means they are betting that, during the time they are obligated to pay the mortgage, the fixed will perform better than the ARM. Either way, they are rolling the dice and making a bet. The only difference is they will know the result of the fixed payment. The key here is to get the odds to work in your favor. That is where understanding and guidance from the loan originator can be worth its weight in gold.

    My suggestion is simple. Use your mortgage, which is normally your largest asset, and utilize it into your overall financial plan.

    Please let me know if you have any further questions. Also, the hybrid arm loan I referenced just came to the market in the last 60 days. Just as in any other profession, new loan products are introduced each year.

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