Basics

A minimum paymen option mortgage is a loan that allows a borrower the option to make a minimum payment each month that is lower than the interest only level. The right to make a minimum payment is usually limited to several years.

When a mortgage bill arrives in the mail a borrower can pay at:

• 15 year payment rate
• 30 year payment rate
• interest only payment rate
• minimum payment rate

The borrower can choose which payment to make. Some months a borrower can pay at the one level and in another month pay at another level.

The interest rate on these loans is typically an interest rate index plus a margin.

A Minimum Payment Option Payment Example

This loan has:

• $350,000 payment
• 30 year term
• interest rate index of 3.5%
• margin of 3%

A minimum payment rate of 1% has a monthly minmium payment of $1,126.

A minimum payment rate of 1.25% has a monthly minmium payment of $1,166.

A minimum payment rate of 1.95% has a monthly minmium payment of $1,285.

A minimum payment rate of 2.50% has a monthly minmium payment of $1,383.

The annual minimum payment option usually is fixed for 12 months at a time, and increases slightly each year for several years.

For example, a minimum payment may be $1,100 in the first year, $1,200 in the second year, and $1,300 in the third year.

There are many free mortgage calculators available online to help you figure this out.

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Source: www.ezinearticles.com