Condo Mortgage Financing the Option ARM Way


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With the condo market apparently showing signs of slowing down, a systematic strategy for reviving activity is having affordable condo mortgage financing available to prospective buyers. An issue for many homeowners is in managing monthly income and expenses, or “cash flow” in general. Income fluctuates every month and unforeseen expenses come up when least anticipated. For many people, mortgage payment comprises the largest monthly expense, and also the least flexible. Most buyers desire for luxury and they want it with an affordable monthly mortgage payment.

A specific type of condo mortgage financing—option adjustable-rate mortgage (option ARM)—has been devised as an alternative condo mortgage product which, if fully understood can serve as a valuable tool to acquire a property that otherwise would be very difficult to acquire. The product has been designed to give condo owners greater control over the mortgage payment.

Recently there has been a substantial transaction activity from buyers who wish to buy condo properties in Miami within the $200,000 price range. Unfortunately spending $200,000 in most cases will not produce a property which meets even the most basic standards of a select group of buyers.

Benefits of Option ARM

The benefits of option ARM condo mortgage financing is discussed here in a general manner. Option ARM, if understood, is considered to be a viable solution for buyers to obtain the condo properties through condo mortgage financing. In particular, the particular type of option ARM elaborated here is also called “short term option ARM mortgage. ” Do not confuse “short term” with high payment, as it normally does for mortgage. “Short Term” here implies lowest interest rate, as the prevailing introductory rate on a one month option ARM is 1.75%.

Let us show a sample calculation using the said condo mortgage financing scheme. If a buyer considers about purchasing, say a $350,000 Miami condo and were to opt for a one month option ARM Mortgage, and place a $25,000 down payment, the monthly mortgage payment would turn out to be $1156. A $200,000 condo mortgage payment would turn out to be a mere $710 per month.

Indeed, with the simple example above, it appears that this mode of condo mortgage financing has the potential of making one’s condo acquisition an affordable investment.

Risks Involved With Option ARM

Simply, the risk of selecting option ARM for condo mortgage financing is the possibility that a negative amortization could occur. This implies that if borrowers opt to only make minimum payments for an extended period of time, they may encounter the chance that they will owe more at the end of the second or third year than they did on the first year of amortization.

Another risk, albeit of a lesser extent than the one mentioned above, is the probability that interest rates escalate. Even though the minimum payment remains affordable, the amount of negative amortization may be substantial. Usually, lenders hedge such risk potential by requiring borrowers to “re-cast” the mortgage should they owe 25% or more than the original mortgage amount at any point in time.

The option ARM condo mortgage financing scheme is actually not suitable for everyone as it may not match up in each and every scenario. Nevertheless, in many instances this condo mortgage financing option as well as other alternatives can truly make mortgage payments affordable to purchase a condo.

Earl Juanico


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