Question:

When to use the deferred interest payment option?

Answer:

The deferred interest payment option can come in handy if you have just moved from Nebraska to New York city. You probably sold your house successfully, but have difficulties qualifying for a new fixed rate mortgage loan with expensive monthly payment. In that case, an Option ARM loan with deferred interest payment may be much easier to qualify for.

Tips on Using Deferred Interest Payment Plan

Do not use up your minimum payment option. Although it is very attractive to always make the minimum payment, it won't hurt if you make additional payments towards the principal. Thus, you reduce the negative amortization of your loan and avoid reaching the loan balance limit (110% to 125% of the original loan amount) that would trigger fully amortizing repayment schedule.

If you know you are only staying in the house for a short time less than 3 years), don't bother paying principal, especially if you are living in an area with rising home values. Just watch out for the negative amortization loan limit allowed on your deferred interest mortgage.

The deferred interest payment plan is a good one to use when buying a house before selling your old one. It qualifies you for greater loan amount and keeps the monthly housing expense ratio low.

If you are buying a house when homes are depreciating in value, don't get accustomed to making the deferred interest payment only. The neg am loan balance limit will be reached way too soon and your loan will be recast - leaving you with huge monthly payments and a house that costs less than what you owe.

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