I am a new/young investor… I bought my first property one year ago and I’m looking to refinance… I have a no money down mortgage … and over the past year I have accumulated some sweat equity into this property which I would like to use to pay off higher interest debt and finish the work that needs to be done… I’m interested in lowering my monthly payments as much as possible… and have recently been attracted to American Mortgage, Inc. COSI Loan… any information about this loan or any other loans that you feel may be better for someone in my situation would be appreciated… Thank you.
The COSI loan is tied to the Cost of Savings Index which in this current economy is very stable vs the COFI loans which are tied to the Cost of Funds Index.
Sounds like they are giving you ARM with a ceiling tied to the COSI. Example: 5/1 ARM @ par (6.5% + your current COSI rate - 4%) Agan that was just a example.
Personally, if the terms sound good and you like what they are offering, go for it…
Thanks for the reply jwoods …
Heres the Actual info:
3.40% (fixed margin) + 3.79% (COSI Index)
Annual payment Cap is 7.5% of previous Principal and Interest Payment
Program starts at 1.95% payment rate and slowly moves to a 7.19% note rate over an 8 year period
Loan amount: 175,000
1st year 642.47 Bi weekly 321.24
2nd year 690.66 Bi weekly 345.33
3rd year 742.45 Bi weekly 371.23
I think it sounds pretty good … do you have any advice on some other questions that might be worth asking before going forward? Thanks again.
This is an option ARM, probably through World Savings as they tend to have option ARMs tied to COSI. It is called an option ARM because you have four payment options each month. ONe of them is the low payment you are talking about- $642/ mo the first year.
Before you get into this loan, you must understand the following:
The other three payments are tied to the COSI index. For example, as you stated, your margin (fixed for the life of the loan) is 3.4% and the COSI this month is 3.79%. So the lender uses the Margin + Index rate (in this case 3.4% + 3.79% = 7.19%) to calculate the other 3 payments each month. The 3 other payment options are: interest only based on your current balance at the 7.19% rate, 30 year amortized payment, and 15 year amortized payment.
Next month, the COSI will be at a different rate, so your interest rate for the other 3 payments will be 3.4% (margin) + COSI index. The 3 payments will be re-calculated based on the interest rate that month.
It is likely that the 3 payments that are tied to COSI will be higher than the minimum payment. In that case, the difference is tacked on to your principal balance. So, for example if you make the minimum payment of $642 per month, and this month your interest only payment is $842, then the difference will be added to your principal balance because you have not paid all of the interest for that month. Your balance will go up by $842- $642= $200. This is referred to as negative amortization or deferred interest.
This can be a good loan for an investor who is trying to cash flow, but you absolutely must understand the concept of negative amortization and the fact that your interest rate will change each month before you get into it. The $642 per month payment that you have been told about is a fixed payment, not a fixed interest rate.
rbaxter thanks for the post …
After reading your reply I feel maybe I should continue looking but not completely discard this type of loan …
Does anyone have a recommendations of other loan options I may want to look into …
I am looking to lower monthly payments and possibly take out some of my equity to finish the work on the property … I don’t see myself staying in this property much longer … I have one year left of college and that is really the only reason I havent rushed to complete the rehab on this house … Thanks in advance for your advice and I would appreciate all the info I can get …
If you are only going to be in the house for another year you should be looking at short term adjustable rate mortgages. I would do a 3/6 ARM with NO PREPAY. Your rate will be nice and low and you can sell when ever you are ready.
Im not familiar could you give me a little more info on a 3/6 arm with no prepay? could you directme to good source to get some more info on this type of loan? Thanks for reply.
Simply means that the loan is on a 30 year amortization but the rate is fixed for only the first 3 years. After that, the rate adjusts every 6 months.
3/6 ARM= “3” fixed for 3 years, “6” adjusts every 6 months thereafter.
Chris is right, though, a short term ARM is a wise move if you are only going to own the property for one or two years.
There are actually COSI loans with investors that have a 1% start rate, and on a $175k loan would have a $562 payment with the same guidelines as the responce above,
#1. your margin is too high. Don’t take it. COSI has a lower index than the 12MTA, but you’re being pitched a higher margin… which will hurt you in the long run.
#2. RBAXTER is right. that’s a World Savings product. They love the COSI.
#3. We don’t know your whole picture. We need to know how conservative you are. Do you want a rate that is fixed for 5 years? I’ve got one. here… 4.75%… adjusts into a ARm after 5 years… 1 yr pre-pay penalty… amortized over 30 years…
#4. You should be able to get a start rate of 1% on the option arm… but depending on your LTV, your neg am may not allow you to pay that for very long…
#5. you do need to know more about option arms… for more on option arms, try here:
definition of COSI: One of the largest Savings and Loans in the 11th District (CA, AZ, NV) offers a mortgage program tied to its own “cost of savings.” Simply put, this Lender borrows money from consumers in the form of deposits, i.e. C/D’s, checking and savings accounts, and then lends the money out as home mortgages. Then they place a fixed “Margin” on top of their own Index. Historically, the COSI has moved up and down much less rapidly than indexes based on the PRIME Rate, the Federal Reserve discount rate, or Treasury bill rates. This is because COSI is composed primarily of fixed-rate deposits of varying maturities (i.e. C/D’s.) Since rates on these deposits are not affected by changes in market interest rates until the deposits mature, the average interest rate on deposits in a particular month reflects, to a significant degree, interest rates that were in effect in previous months.
Thank you to everyone to has replyed to my post …
The whole picture?
I would say I at this point I am somewhat conservative. I bought this property when I was 20 (now 21) I’m still a student, so do not have much to fall back on if the rate increases drastically. I plan on having the all the renovations done by next spring when I graduate. As I mentioned before at this time I may be interested in sellling and moving on. I am obviously new to this rei and financing options and am interested in as much info and guidance you guys and gals are willing to give me. Any advice on some reading to help clarify all of these mortgages terms and numbers?
If I miss understood and you need any other info from me just let me know.
lending hand thank you for the link
Thanks again for taking the time to reply.
Best of luck to you.