Question:

Should I take a COSI loan?

Answer:

A COSI loan is usually an option adjustable rate mortgage based on the Cost Of Savings Index (COSI). The COSI ARM index is considered to be less volatile than most of the other ARM indexes.

However, the COSI loans exhibit all the features one may like or dislike about ARMs. A COSI-indexed adjustable rate mortgage frees up cash, and allows the loan applicant to qualify for a greater amount. If you are wondering whether to take a COSI loan, you are wondering if you should take an ARM (adjustable rate mortgage) vs. FRM (fixed rate mortgage).

A Successful COSI Loan

If you have made up your mind and decided to go with a COSI-based ARM, try to determine with the lender where you can observe the COSI index so that you are always informed what the current COSI rate is and know the margin and the effective rate of your COSI mortgage. Also, inquire about some COSI history and statistics so that you have an idea how the COSI index is expected to change.

Check with your lender how long your COSI loan will have the introductory teaser rate - some COSI mortgage loans have a low rate of under 2% for as short a time as one month. Learn how the rate will adjust afterwards. The good thing about COSI-based ARMs is that the initial payment is so low one could easily make extra payments towards the principal, thus accelerating loan amortization.

However, do not forget that long-term homebuyers always fare best if they lock up fixed rate mortgages at low levels, as when rates are really low they will start climbing up since they can't go any lower. At that time, if you are tied with a COSI ARM you will face increasing payments sooner or later.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
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