MTA Index / MTA Mortgage

INDEX HIGHS AND LOWS OVER THE LAST TEN YEARS - FROM JANUARY 1993 THRU OCTOBER 2003
HIGHEST INDEX LOWEST INDEX MARGIN* HIGHEST INTEREST RATE LOWEST INTEREST RATE LIFE CAP OF FULLY INDEXED RATE*** START RATE*****
(MINIMUM PAYMENT IS BASED ON THIS RATE)
COFI 5.607% 1.923% 2.95% 8.557% 4.873% 9.95% 2.750% (1 YR )
COSI 5.540% 1.950% 3.25% 8.790% 5.200% 11.95% 1.950%
CODI 6.456% 1.194% 3.50% 9.956% 4.694% 11.95% 1.950%
MTA, Monthly Treasury ARM 6.250% 1.268% 2.60% 8.850% 3.868% 8.95% 1.250% (1 YR)
LIBOR 6.827% 1.103% 2.75% 9.577% 3.853% 19.90%**** 1.250%
*The margin may vary depending on loan size, market, lender, etc.
**These Option Arms all come with a prepayment penalty. You may opt out of a prepayment penalty by paying points.
***The life cap may vary depending on the loan parameters and from lender to lender
****This may be bought down to 13.75% for .125 and by adding .05 to the margin
*****The start rate may vary depending on LTV, etc.

Refinance or Purchase

The first steps in understanding the 1.95% mortgage is to realize your savings and a willingness to throw the fixed rate mortgage mentality out the window.

Next, is to have a better understanding of the 1.95% mortgage itself.

The 1.95% Mortgage is a 30 year, one month ARM product. It is the most modern and innovative mortgage product on the market. The payment rate starts at 1.95% and gradually increase over 5 years to the full index rate.

Depending on the lender of choice, the loan is based on one of the two most stable indexes in the industry, the COSI or the MTA. The interest rate may change monthly but the payments are preset for 5 years.

With the 1.95% mortgage, your payments are on a five year fixed schedule much lower than you have with the old fixed rate loans and you can reduce your payments by up to 45% depending upon your present rate and payments.

Your first year's payments will be the loan amount times 3.7 (a calculator number). For example, a $100,000 loan, your first year's monthly payments will be $100k X 3.7 = $370. Each of the next 4 years, the payment can go up or down... but, if up, only by a maximum of 7.5% per year. For Example, if your monthly payments are $370... next year's payments can not be more than $397.

Now that we understand how the monthly payments work let's look at the Payments and Savings with 1.95% versus a fixed rate loan at 5.5%, 6.5%, 7.5%, and 8.5%.

$200,000 loan for 30 years…

using the max annual payment increase of 7.5%

Years
1.95%

Monthly Pmts
5.5% Monthly Pmts
6.5%

Monthly Pmts
7.5%

Monthly Pmts
8.5%

Monthly Pmts

1
$740
$1,135 $1,264
$1,398
$1,537

2
$795
$1,135 $1,264
$1,398
$1,537

3
$855
$1,135 $1,264
$1,398
$1,537

4
$919
$1,135 $1,264
$1,398
$1,537

5
$988
$1,135 $1,264
$1,398
$1,537

Total payments 5 yrs
$51,578
$68,134 $75,848
$83,905
$92,269



less $51,578
less $51,578
less $51,578
less $25,789

5 Yr Savings

$16,556
$24,269
$32,327
$40,691




Look at the savings over the first five years on a $200k loan. This is savings that can be applied towards your principal to create an even greater savings. Or, you can use the savings to jump start a savings or retirement plan. Regardless of how you use the savings... It's dollars that you've saved and not given to the bank by not having an old fixed rate loan.
The 1.95% Mortgage Product Will Create The Extra Cash Flow, But... You Spend It.

As you can see from the above charts, you can save tens of thousands in five years. These thousands of dollars can create an instant, unexpected source of cash flow for you. We urge you to be prepared for the cash flow and use the money wisely.

Questions?
Call a Senior Loan Analysts at 1-609-953-7442 or 1-609-923-6042

WHAT IS DEFERRED INTEREST?

"What is Deferred Interest, Anyway?"
With the COFI/COSI/CODI/MTA adjustable rate mortgage, CHOOSING THE OPTION OF "MINIMUM PAYMENT" sometimes doesn't cover all of the Principal and Interest due that month. When that happens, you "defer" the extra Principal and Interest, by adding it to the outstanding balance of your mortgage. Deferred interest may occur if:
You have a mortgage with a special "MINIMUM PAYMENT" option.
The 7.5% ANNUAL PAYMENT CAP on your mortgage goes into effect.
THE INDEX THAT DETERMINES THE INTEREST RATE on your loan goes up. However, the factors that cause deferred interest are also the factors that make a loan affordable:
A MINIMUM PAYMENT allows payments to remain low during the critical first five (5) years of home ownership.
PAYMENT CAPS limit how much the monthly payment can rise each year. (Payments can also drop when the Index-falls.)
"How Will I Ever Pay Off My Loan If Deferred Interest Is Making My Balance Go Up?"
Your COFI/COSI/CODI/MTA mortgage is designed to pay off on time; it is guaranteed. While there are occasions when deferred interest can add to your loan balance, there are may other periods when your loan pays off at a faster than normal rate. Over time, these periods of deferred interest and faster payoff offset each other. The result: your mortgage pays off on schedule.
"Must I Have Deferred Interest On My Loan?"
No. Your loan has a Deferred Interest Payment Option that offers you a variety of choices on how to pay off your loan. These payment choices are clearly listed on the payment coupon of your monthly loan statement. You can, if you choose, pay all interest as it accrues, thereby avoiding having deferred interest added to your loan balance. You'll also always have an option to make a payment based upon the fully indexed rate or Index + Margin, thus avoiding negative amortization all together.
"Is It To My Advantage To Pay Deferred Interest As It Occurs?"
It all depends on your financial situation. For some homeowners, it's wise to pay all the Principal and Interest as it occurs. For many others, it makes more financial sense to pay just the Interest that is due, and others will opt to defer both their Principal and Interest, as they are looking for the lowest pmts. possible.
THE ADVANTAGES OF HAVING a "DEFERRED INTEREST/Negative Amortization" OPTION : Electing not to pay all the Principal and Interest will mean more cash in your pocket. Choosing this option (Minimum payment) makes financial sense if it helps you:
Keep house payments affordable in case of the loss of a job.
Save money by paying debts with higher interest rates than your mortgage. Do you have an outstanding credit card debt? Or a high-rate home equity? If so, you'll benefit by not paying deferred interest on your mortgage. Use the money to help pay your other debts instead. You'll save the difference between the rate charged on other loans (18% or more for VISA, MasterCard, or store credit cards) and the much lower rate on your COFI/COSI/CODI/MTA mortgage, which is tax-deductible.
Make home improvements that increase the value of your property. Rather than paying deferred interest, use the cash you save to help you for:
New carpeting.
Adding a bathroom.
Landscaping your property.
Installing a sun deck.
Invest in other profitable alternatives. Use the money that remains in your pocket when you choose not to pay deferred interest to:
Fund an IRA or invest in a mutual fund.
Build up a college fund for your children.
The Index changes every month, but the Margin never changes. Your COFI, MTA, COSI, or CODI loan balance will change monthly regardless of what payment option you choose:

If you make the "Fully Indexed" payment/"P.I." payment (Index + Margin) or "Scheduled payment" (Index + Margin X outstanding loan balance) option every month, your loan balance will always decline regardless of the movement of the Index. This is because your loan balance will be lower each month, and this lower balance will then be re-calculated by the new monthly Index + Margin. Hence, the yearly 7.5% Payment Cap will never be enforced or "come into play", because your outstanding loan balance will always be declining even if the Index is increasing, as the computer will readjust your next Principal Interest (Scheduled payment) higher to compensate for the higher Index.
If you make only the "Minimum payment" option, your loan balance will increase (negative amortization) for the first few years. This option is completely allowed by the Lender without hurting your credit rating, or charging any type of late fees. Hence, If your monthly Minimum payment is not sufficient to pay the full amount of interest due, the Lender adds this accrued but unpaid interest to the unpaid principal balance of the loan. Until repaid, deferred interest bears interest at the fully indexed rate of the loan. Eventually (because of the "forced" yearly 7.5% payment Cap adjustments), the Minimum payment is more than sufficient to pay the full amount of interest due, (this usually takes between 6-8 years depending upon your initial "Starting Rate", Margin, and the movement of the Index), and the Lender will subtract the amount that exceeds the interest due (negative amortization) from the principal balance, resulting in a principal reduction. Eventually, because of the 7.5% yearly payment cap, your Minimum payments will become a full P/I payment or Scheduled payments.
Your existing principal balance may never exceed 125% (this amount may change from lender to lender) of the original principal balance amount in any 5 year period. If deferred interest (negative amortization) ever caused your principal balance to reach these limits, the Lender would immediately increase your Minimum payment without regard to the 7.5% payment cap. The increased Minimum payment would pay off the loan at the then current fully indexed rate (Index + Margin) and remaining term. In that event, in the 5th, 10th, 15th, 20th, and 25th years, the Lender would take the amount of deferred interest, add it to the existing balance, and "recast" or re-amortize the loan so that it will still pay off on its original term. This has never happened since the creation of the COFI program in 1981, because the Index moves so slowly!!

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MTA Index - Historical Data