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Today I’ d like to discuss the controversial type of loan, which really is not so bad if you understand how it works. You probablly hear radio commercials about this.

Disclaimer: please not that I am explaining this as a consumer. So it is my advise that you consult with your bank of mortgage lendor for the exact details of this. This is only my single opinion about this. I like this loan. But there are also some people who have lost money, because of a lack of understanding of it. Always consult with a licenced lendor first, before you make any type of financial decissions.

Now here is my explaination of how this has worked for me:

As far as know: A true mortgage loan never has a 1 percent, 1.5 or 1.75 percent rate. So they call this a teasor rate for advertising purposes. Also this is only one option of payment when you use this type of loan. 

What you really get is a loan that is adjustable and it used the MTA or LIBOR index plus a margin of 2.75 percent. So the actual mortgage rate is currently at about 7.5 percent. This is actually pretty close to some regular fixed rates, but this is adjustable so it can go up or down each month.

When you apply for this loan and close: You are given a special option to pay a lower payment rate of lets say 1.5 percent of the interest only for a limited amount of years.

Afterwards you may have to make a higher payment. But this is usually after 5 years or more.

If the true interest rate is at 7.5 percent: Than the other 6 percent is it is actually taken away from your home equity each month. 

So you are actually creating some  negative equity with each payment.

And to explain this in another way you are given an option to make a much lower payment then you would if you had a regular mortgage. This is how some people are able to have super low mortgage payments. This works out excellent if you are in the business of buying homes and flipping them in 1 or 2 years. If you make a lot of equity gain, it will most probably ofset any losses.

Since the loan is called an option loan, you also have the option to make the full interest only payment or even a fully amortized payment. Sometimes they even give you an option to convert it over to a fixed rate. But you have to ask your bank or mortgage broker about this.

I have this type of loan and even though I may be creating some negative equity, my own home has increased in value by a much greater amount. I am also planning to start paying the full interest only payment later this year. Or I may sell my house and use my remaining equity to buy a smaller home for cash!

This is also an example of how you can leverage the banks money to build wealth via home equity much faster than you could ever save it in the bank.

Here are some of the recent topics of this blog

1)Use Sales Tax to help collect money from illegal immigrants and help pay for Hurricane disaster relief so that all of us homeowners can pay less on property taxes and insurance. 

2) Personal Loan are sometimes better than Equity lines of credit Some personal loans offer rates of 5 percent or less at a fixed rate While most Home equity lines charge you the prime interest rate of 8.25 percent and even though they tell you that you can same money on your income tax return the truth is that it still is not worth it. the tax savings is often less than 10 percent of your income and this amount can be a very samll savings compared to the higher prime interest rate of 8.25 percent So if your payment on 50,000 loan is only $210 a month at 5 percent rate, then then why should you pay $350 for an equity loan where even if you subtract the $50 tax savings you still end up paying $90 extra per month. 

3) How to win the war in Iraq? Its easy

We need to let our the FBI and CIA, run the operations much more like Jack Bauer does in the FOX TV show 24. I know some Muslim groups concerned about Fox show 24, but that usually are the ones that may actually have something to hide. Our civil libertys are protected especially when we are good people and have no criminal intentions to hide. Like those who send money to bad people they should be punished. And in jail you do deserve to have less freedom. 

4) We need to do something about the high price of Homeowner insurance and taxes in South Florida.

We need to crack down on insurance Fraud and overpayments from insurance companies that are driving up the cost of living in south Florida. This may create a Real Estate Bubble worse than that which happened in 1920’s
Yes there was a bubble in the 1920’s and this can and will happen again if we do not stop these tax and insurance increase from ruining our economy. We really should use sales tax as a way to defend our economy. 

5) Fight back again evil homeowner associations.

This is like legal communism and we must learn how to fight back against them we live in a free county, so do not let a bunch of lawyers come up with rules that go against the freedom that we deserve in America. 

6) The new Homestead Hospital in South Florida

This new Hospital will really help create new jobs in Homestead and South Miami and it will give a little boost to the currently flooded Real Estate market in the area.
I have heard rumors that it will be finished very soon, perhaps my mid April 2007. So if you own a house down there. do not sell it yet. 

As you know I have had several issues with insurance, high taxes and unfair competion in the job market. I have wrote letters to the Governor and I have posted comments on this and also so other blogs. But Now I have a thought. if we need to find extra ways to fund the Florida Government, in case of another Hurricane or other perils, why do they not propose a plan to raise sales tax by 1 more penny. I know this sounds bad to some people. But what is worse? Pay more for your House, property and income taxes, or Pay less there and a little bit more when you are out shopping with the money that you will save on your house expenses. Plus the government will finally get a little more money from all Illegal immigrants, who I know like to work hard, but some of them do not pay income tax at all. This is because most day labor and contruction workers are paid cash. So they do work hard, we need them, but we also have to pay for the taxes that they do not spend. So Sales tax is the only way to force them to pay taxes. And we all know how much they like to buy beer and other items that have sales tax. So why else would you not agree with this? We could all be living a better life this way.