Do you know what to ask when shopping for an InterestOnly (IO) mortgage payment or a paymentoption ARM?
You will when you use the Mortgage Shopping Worksheet (pdf). It’s important you know the details of every mortgage product you are considerring and the different options they provide. Don’t be afraid to ask questions until you fully understand the details.
If you are working with a lender or broker that can’t or won’t provide ALL the answers to the questions in the Mortgage Shopping Worksheet (pdf)…RUN!
Not only is it critical you get a mortgage that’s affordable today, it’s imperative you get a mortgage that allows you to buy/refinance the house and continue to afford the payments, even if payments go up over time or be in a position to refinance into a more financially favorable mortgage if warranted.
Below is an example of the Mortgage Shopping Worksheet (pdf).

Example 
Mortgage 1 
Mortgage 2 
Name of lender or broker & contact information 
ABC Mortgage Co.
8001234567 
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Mortgage amount 
$180,000 
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Loan description 
Paymentoption ARM; 1month introductory rate; 30year term 
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Is this an IO payment or a paymentoption ARM? 
Paymentoption ARM 
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If different payment options are available, what are the options? 
1. First year’s minimum payment based on initial interest rate
2. Interestonly payment based on rate after adjustment
3. Fully amortizing payment based on 30year term 
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What is the full term of the mortgage? 
30 years 
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How long is the option period? 
The loan will be recalculated (recast) every 5 years. Payment options are available every month except (1) when loan is recast every 5 years, (2) when balance is 125% of original loan, or (3) if you fall more than 60 days behind in your payments. 
___ 
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What is the initial interest rate? 
1.6% 
___ 
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For a paymentoption ARM, how long does the initial interest rate apply? 
1 month 
___ 
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What will the interest rate be after the initial rate? 
6.4% 
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How often can the interest rate adjust? 
Monthly 
___ 
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What is the periodic interest rate cap? 
2% per year 
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What is the overall interest rate cap? 
6% lifetime cap (maximum interest rate is 12.4%) 
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How often will the monthly payments adjust? 
Annually 
___ 
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What is the payment cap? 
7.5% per year;
does not apply to recalculation every 5th year 
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Can this loan have negative amortization? 
Yes 
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Is there a limit to how much the balance can grow before the loan will be recalculated? 
Up to 125% of original amount borrowed (loan will be recalculated if balance grows to $225,000) 
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Is there a prepayment penalty if I end this mortgage early by refinancing or selling my home? 
Yes 
___ 
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How much is the penalty? 
3% of amount borrowed in 1st year ($5,400), down to 1% of amount borrowed in 3rd year ($1,800); no prepayment penalty after year 3 
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What will my monthly payments be for the first year of the loan? 
$630 
___ 
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Does this include taxes and insurance? Homeowner’s association fees? 
No 
___ 
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What is the most my minimum monthly payment could be after 12 months? 
$677
(based on 7.5% cap) 
___ 
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What is the most my minimum monthly payment could be after 24 months? 
$728
(based on 7.5% cap) 
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What is the most my minimum monthly payment could be after 36 months? 
$783
(based on 7.5% cap) 
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What is the most my minimum monthly payment could be after 48 months? 
$2,491
(based on recalculation of the loan when balance is $225,000) 
___ 
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What is the most my minimum monthly payment could be after 60 months (5 years)? 
$2,491
(based on recalculation of the loan after 4 years) 
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What would my minimum monthly payment be after 60 months (5 years) if the interest rate stays the same? 
$1,308
(based on recalculation of the loan after 5 years) 
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What are the fees and charges due at closing on this loan? 
See good faith estimate 
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Links to previous articles in this series:
InterestOnly Mortgages and OptionPayment ARM’s: Part 1
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Tony Gallegos – Serving the mortgage needs of Kennesaw, Marietta, Roswell, Smyrna, Powder Springs, Dallas, Acworth, Woodstock, Douglasville, Hiram, Austell and Atlanta. Subscribe to The Mortgage Cicerone:
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