m2c
Joined: 03 Aug 2005
Posts: 937
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| Posted: Tue Aug 29, 2006 11:45 am Post subject: |
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And the question …..is ?
Not sure what you’re after but I haven’t been pushing this type of loan for some time – just not enough spread in the 5/1 relative to fixed rate for “economical justification”. The fixed rate IO has always been a “special situation” loan since the borrower takes a hit in rate – either “desperation for qualification”, absolute certainty borrower will exit house or loan by the end of the IO period, or periodic spikes in income that borrower intends to apply to principal.
True to the loan officer creed, I didn’t follow the advice above and went with a 5/1 IO but at the time I picked up a 5/8 percentage point reduction in rate in return for the risk. My driving force was the desire for autorecast feature. Options were a second mortgage that would be paid off in this case from the sale of my current home or a “promise” of one “free” recast. Both these choices seemed too limiting. LOs have many spikes in income and most keep 2 or 3 years income in some type of liquid savings to cover the lean times. Latter provides a safety value to pay down the loan to limit potential payment increase if rates are higher when the shift to P&I occurs.
Boils down to whether the IO fits YOUR situation. Rate incentive right now is not there. |
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