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Is this real, are you kidding? Yes and No. There really are programs such as this available but a report issued by a Wall street firm suggests that some low-payment loans in todays hot market could cause problems for borrowers who dont really understand the risks they are going into. This low start rate or what we call a teaser rate is an option payment that the lender will allow you to pay for the first year you have the loan. But what they have to fully explain to you is that, if you choose that 1% mortgage rate option, you will have a deferred payment that will be added to your mortgage balance.

That is called a Negative Amortization Loan which means if you choose the low payment option there is an ability to increase to 115% of your loan balance. For example, if you have a $300,000 loan and you choose the 1% monthly mortgage payment of $ 1,125, you will owe the lender the difference between the low start rate and the actual pay rate of an estimated $ 1800.00 monthly( depends on the index ) that is also known as the Note Rate which is adjusting every month based on several indexes and most importantly a fixed margin which hardly anybody has heard off. In one years time your balance will actually be around $8,000 over your mortgage balance which means that in 5 years time you will be owing around $40,000 more.

My 18 years experience in the mortgage business has gave me full understanding in the movements and volatility of these adjustable rate mortgages. There are several types of Adjustable rate mortgages that will make you sleep better at night. Such as, the 3/5/7 or 10 adjustable rate mortgages, the 6 month no negative adjustable rate mortgages. Our web site has information about the various types of California home loans we offer. Mind you that every loan should have its purpose and here are some of the advantages and disadvantages of different types of ARM ( Adjustable Rate Mortgages).

Advantages of Negative Amortization loans

1) For Investment properties that you are buying for tax benefits

2) For younger couple who is just at an entry level salary position. Meaning this could be a started home and they will eventually buy a bigger home and the increasing salary will offset the deferred payment of this loan.

3) Provided you are putting some money down, someone 100% sure of Refinancing this loan within a few year.

You have to fully understand the loan and outsmart it and not become a money pit. Always know that you should have the ability to pay for the fully indexed loan or the actual loan payment that the lender is requiring for you to pay.

Disadvantages of Negative Amortization loans

1) Your balance has the potential to increase by 115% of your original balance.

2) Rate could keep going up where your deferred payments changes every month.

3) Long Term rates could be much higher where when its time for you to refinance your loan, it might not be affordable anymore.

4) Not fully understanding how this loan operates.

5) Potential prepayment penalties of this loan, this will take a large portion of your equity if you were to refinance early or pay off the mortgage.

Another type of loan to watch out for is the short-term hybrid interest only loans now flooding the market to help consumers with marginal credit or income buy houses. Interest only mortgages requires no down payment of principal for a set time at a low fixed interest rate. Payments during that period typically are set well below what a borrower would pay on a conventional 30 years fixed-rate loan.

At the end of the initial period, which may be as short as two to three years, the loans convert to fully amortizing adjustable rate mortgages at prevailing market rates. Principal reduction now kicks in, but because of the compression of the pay back period 25-28 years and the principal to the payment mix, the total cost can balloon 50% to 70%. Marginally qualified home buyers jolted with such payment increases within 24 t0 36 months of their purchase are very likely to be pushed beyond their ability to pay the loan. They would need again to know when getting these loans, its always for short term advantage only and always vision yourself refinancing before the term is over, this way you will always be prepared to refinance if the interest rates are favorable for you. The key to gaining equity is by knowing what your next move is and when. Good luck!

Ken has been running his southern California home loans business since 1987. His honesty and courtesy equal loyalty to his customers. Forget about "good faith estimates." With 1st Innovative Finance Group, all loan rates and fees are guaranteed upon application. Ken Go writes a California home loans blog and speaks English, Chinese, and Filipino (Tagalog).