[quote=FormerSanDiegan]bearishgirl – Your loan sounds similar to 5/1 Option ARMs, common the past half decade. Most of those were either based on COFI or LIBOR. A similar loan is the 5/1 Interest-only ARMs, which have all the same features as yours except no negative amortization. 5/1 ARMs and IO ARMS are still advertised (I don;t know anyone who has received one recently, though).[/quote]
FSD, my loan program is for prime and alt-A borrowers only (min. 740 FICO score). A 20% downpayment (or equity stake) is required. With a =>30% downpayment or equity stake, the bank would work with you on the margin. The 5/1 I/O ARMS you are referring to have MANDATORY resets at the 61st month. A pure COFI loan which closely follows its index and fully amortizes from day one does NOT have a reset. The COFI Option ARM program was in existence for 30 years until it was all but pulled from the market in recent years. It was an awesome deal in the mid-late eighties, the nineties and now.
There IS another COFI Option ARM that I was familiar with (an Alt-A product) which was recast at the current rate plus the margin at the 61st month and every 12th month thereafter. The payments are level for those 12 months and are then adjusted at the next recast to the prevailing rate plus the margin. It’s a crapshoot but I personally think it is more favorable to the borrower to follow the index closely. The same is true of the One Year T-Bill program (an Alt-A product), except it adjusts once yearly beginning the 13th month and every 12th month thereafter. The one-year T-Bill index has been very low at times but is more volatile overall than the COFI index, IMO. The one-year T-Bill program does NOT reset as it is not an Option ARM.
[quote=FormerSanDiegan]I once had a 5/1 IO ARM on a rental property. I was spooked by high short-term rates in 2006-2007 and refi’d into a 6.25% fixed rate in 2007 (and again in 2009 to less than 5%). If I held my original loan the current rate would be less than 3.5% (12-month LIBOR + 2.25%).[/quote]
I’m not as familiar with the performance of the LIBOR index but I guess you are now aware that you should have left your purchase $$ loan alone. Not to mention what it cost you to refi the property twice :={
[quote=FormerSanDiegan]In response to the theory that the next wave of loan resets would lead to massive defaults (I disagree with that theory), I have been tracking resets of loans originated in the 2004-2006 timeframe for 11 months so far here …
Yes, FSD, I reread your thread. Borrowers in the 2004-2006 timeframe differ from me in that my last RE purchase was in 2001 and I never had a “reset” due to prudently paying the fully amortized rate, so I’m not “kicking any cans” down the road.
