OPTION 1 - MINIMUM FIXED 1% PAYMENT

• The first year of the loan has payments starting at 1% and gradually increases every year for the following four years. (Total: first 5 years).
• By the time you are at the 5th year your payment should be pretty close to the current market payment amount.
• For the remaining 25 years you then pay the full payment of principle and interest at the market rate, thereby reducing your Principle balance to Zero by year 30.

Thereafter, your payment will be based on the Margin plus the Index every month for the remaining 25 years.

Example:
If the Margin is 3.1% and the current MTA Index is 4.2%, the interest rate would be:

Margin of 3.10%. + Index of 4.20% TOTAL Interest Rate of 7.30% (The APR would be 7.00%)

This TOTAL Interest Rate can adjust monthly depending on whether there are adjustments to the Index (the Margin always remains the same). With Option 1, your payments are fixed every month, but you are in fact paying less than the required amount (Margin plus Index). This shortfall in payment every month is added to your Principle so that after the first 5 years you will owe more than you initially borrowed. However, over the following 25 years, your Principle balance will reduce down to zero.

OPTION 2 - PAYMENT OF INTEREST ONLY.

• You have the option every month of paying the Interest only payment, and at the end of 5 years, you will still owe the same Principle amount of the loan.
• For the remaining 25 years, you then pay the full payment of principle and interest, and your balance will reduce to zero.
• Monthly Interest Rates are determined by adding Margin (eg. 3.10%) to the current Index Rate (eg. 4.20%).

OPTION 3 - PAYMENT OF PRINCIPLE AND INTEREST

• You have the option every month of paying the fully amortized payment of Principle and Interest and at the end of 30 years, your balance will have reduced to zero.
• Monthly Interest Rates are determined by adding Margin (eg. 3.10%) to the current Index Rate (eg. 4.20%).

OPTION 4 - PAYMENT OF PRINCIPLE AND INTEREST AMORTIZED OVER 15 YEARS.

• You have the option every month of paying the fully amortized payment of Principle and Interest over a 15-year period, and at the end of 15 years your balance will have reduced to zero.
• Monthly Interest Rates are determined by adding Margin (eg. 3.10%) to the current Index rate (eg. 4.20%).

You can pay any payment option . Any month during the first 5 years of this loan ,and thereafter it becomes a fully amortized principle and interest loan, for the remaining 25 years at curent market rates.

The 1% Graduated payment loans have an APR of approximately 7%.

PREPAYMENTS ON GRADUATED PAYMENT LOANS.
There are 4 pre-payment options for this loan:

1. 3-year prepay - whereby a most of the upfront loan costs are paid by the Lender.
2. 1-year prepay - whereby a large portion of the upfront loan costs are paid by the Lender.
3. No prepay - whereby all loan fees are paid by the Borrower.
4. Soft Prepay – Can apply to (1) or (2) above and applies if you re-finance but falls away entirely if you sell the property.
   

General Explanation of Terms

Principle - The original loan amount that is borrowed.
Interest Rate - The service fee charged to you monthly, by the lender, for advancing you money. The interest rate percentage (%) determines how much or how little the Lender will charge for advancing you the money.
Margin - The difference between the Interest rate that Banks pay for their money when they borrow it and the Interest rate that they charge you when they in turn lend it to you is their Profit. In Banking terms however, they don't use the word Profit, they call it the Margin.
Index - The Base Index is the average base Interest Rate. The banks or lenders must pay for their money when they borrow (take in) money for lending. There are a number of different indexes used The Bank will specify both up front and in the loan documents which Index they are using. The three most widely used Indexes are the:

• LIBOR: The advertised interest rate of the 1 Year London Interbank Offered Rate. This is the rate at which US deposits of Dollars are traded in London.
• COFI: The advertised interest rate of the 11th District Cost of Funds Index. This is the average rate that the other 11 Banking Districts of the USA, pay for money deposited with them.
• MTA: The advertised interest rate of the 12 Month Treasury Average . This is the 12 month average interest paid on United Stated Treasury Securities traded, with a one year maturity.
• When Banks lend out their money (to you) on any ADJUSTABLE RATE MORTGAGE, they add the Margin (the Profit they want to make) to the Index (What they pay for their money from either the LIBOR the COFI or the MTA .) This determines the full Interest Rate that they, in turn will charge you.
• The Margin rate is fixed right upfront for the life of the loan.
• The Index rate can fluctuate from time to time.
• The Indexes used in the mortgage industry are widely published.