im looking to refinance my property and a friend suggested a flex pay program. rate/term refinancing.

Original purchase price $449,000
Comps are $489,000
current mortgage is $2600
new mortgage after refi $2400
option to pay $1900

extra money can be used to leverage to buy investments.

The only thing I can think of is negative amortization at 1900 and the options to fix the rate or do interest only are normally higher rates than if you were to get that type of loan by itself.

Do it though. Perfect for freeing up additional cash flow so an investor has a better chance to obtain more properties and to debt ratio using full documentation for lower interest rates.

Hi Alvin. Pay option arms are a great financial tool when used properly. If you are shopping for one of these programs, make sure you ask these questions:

-what is the index (the MTA, for exemple, is currently at 4.011)

-what is the margin (very important because adding the index to the margin gives you the fully indexed rate (qualifying rate) which is what your payment options are drawm upon. Let's say your margin is 2.75%, your fully indexed rate will be 6.761%. Since your payment options (interest-only, 30-year amortization, and 15-year amortization)will adjust monthly and the market is right now very volatile, you must keep in mind that there is a good chance that your payments and thus, your fully indexed rate will keep going up)

-how long is the low start rate fixed for? (if it is at all)

-ask how long the prepay is for (no-prepay to 3-year hard prepay)

I don't know what kind of program you are on right now but if you plan on only making the lowest payment (neg-am), it is recommended that you have a clear objective in mind as to what you are going to do with the money you will be saving monthly. If you plan on using that money to make you money, sure it is worth considering. If not, I would advise you to look at safer options. (I don't know what your current rate and terms and your goals are so it's impossible to tell you what your best options are right now)

Regardless, my advice would be to steer clear from the 3-year hard prepayment penalty especiallly since the mortgage rates will most likely keep increasing in the near future. You want to be able to refinance without having to pay 6 months worth of interest on 80% of your unpaid loan balance should the market get really bad. So first thing, figure out what is the maximum monthly payment you can afford, the amount of equity you currently have and go from there.

I hope this help.


soft prepay means you can sell without getting penalized but if you refinance you will have to pay the prepay

hard prepay means you will have to pay the prepay regardless if you sell or refinance

thanks greg,alea

im on a 80/20
1st 6.25% 3/1 I/O ARM 30 year amortization 2 year prepay
2nd 10.6% fixed 15 year balloon 2 year prepay
Original price $449k
Comps $489k

id like to free up some cash to pay off my credit debt, bring my bad FICOs up, rent this current place, buy my primary residence and my 2nd investment property. basically aiming for 3 properties after the refinance. 2 NOO and 1 OO.

did you learn all this from a book?

something doesn't add up. Are you sure you don't have an interest-only program either on the first or bot frist and second?

interest only on the first
fixed rate on the second

Ok now it makes sense so your total monthly payments are about $2,690 (oh ok you edited and fixed the post, i thought i was going blind for a sec.)

If you have an interest only loan right now with a 2-year prepay, my question to you is: IS YOUR PREPAY UP or will you have to pay for it?

ive lived in this property for 9 months so far and the 2 year PPP is 6 months worth of interests so i would say about $18k worth of penalties. PPP is guaranteed profit for the lenders and im not willing to give up $18k very easily. im doing the math to see if its worth it to free up the cashflow now and pay the penalties in exchange for debt free and extra savings or to stick it out and do the refi when the PPP is up.

Alvin, since I dont know what your FICO score is or how much you owe in credit cards, it is difficult to say which options would be best for you. Is taking on a pay-option-arm to pay off credit card better than doing a cash out refi taking into account the volatility of the current financial market?...you definitely need to have a mortgage comparison analysis done for you especially if you intend on only making the minimum payment. This property is your home as of right now not an investment property so you need to take that into account too. What I would recommend you do is
1)find out what your credit score is
2)ask yourself how long you plan on living in the property
3) inquire about refinancing with your current lender. Some lenders are willing to waive part of the prepay if their customers do the refinance with them (not all will do that but it doesn't hurt to try)
4)look at how much it will cost you to refinance and how long it will take you to recoup the cost (request a breakeven analysis)
If your breakeven point exceeds the amount of time you plan on keeping the property, then it might not make sense for you to refinance "right now."

There are so many variables that must be looked at to properly advise you on which programs would best help you reach your goals. It would definitely be worth it for you to sit down with someone and discuss your situation as it is impossible to get specific without having all the data we need to advise you properly.

But I hope this will give you an idea of where to start. Let me know if you have any questions.

Your pre-payment penalty is most likely 6 months interest and is very rarely in a persons best interest to eat this large sum of money. I would not suggest this.

As far as the Option ARM is concerned, I would NOT go with the MTA or LIBOR indeces. COFI & COSI (Depending on the lender) will offer much better terms and tend to be a little more stable.

where can i find the MTA, LIBOR, COFI, and COSI indeces??

http://www.lioninc.com/market_snapshot, the COSI index is based off of the particular lenders Cost of Savings Index and you would need to contact the lender directly to obtain this information.

Yeah Alvin with a 580 mid you need to work on credit repair and give the loans some time to show payment history.

No Option Arms available.

You need stated income too right?

I agree not refinancing is your best option. The 2nd will not fly right now. Keep making payments. Try to keep the credit cards under 30% of the limits.

yep im definately focusing on bringing my CC's down

it was 640 about 9 months ago when i first bought the house. this sucks. thanks guys

Yeah I remember you saying it was that high. When you open new debt you have to pay some payments before your score goes back up. Borrowing money initially is a detriment to your score.