@Bill B. thanks for your response. No I was not denied for a fixed rate loan but just shopping around for an investment loan pre-approval at this stage and came across this 10-year balloon offer from my credit union.
Why would you say I should work out the payments @ 6.5% or 8.5% for the remaining balance after 10 years? Is that refinance through a private lender? Or we are just being a bit conservative and assuming that the home loan rates for a refi will be around 6-8% 10 years from now?
That is a great question as far as rate increase goes. I am a bit confused myself. Because even though the title of the loan says ARM but when you read the product highlights it states the rate will be locked in for ten years! Here is the description below:
10 Year Balloon ARM Investment:
"With our 10 Year Balloon ARM Investment product, your initial rate will be tied to the One Year Constant Maturity Treasury (CMT) Index, and will not change during your ten year repayment period. At the end of your ten year fixed rate period, this product features a balloon payment where the entire principal balance of the loan and unpaid interest is due. The loan is amortized over 360 months and due in 120 months. The lender is under no obligation to refinance the loan at that time. You will, therefore, be required to make payment out of other assets that you may own."
However the product disclosure states the following:
"At a 4.375% initial interest rate, the APR for this loan type is 4.683%, subject to increase. Based on current market conditions, the monthly payment schedule would be:
- 119 payments of $998.57 at an interest rate of 4.375%
- 1 payment of $160,534.62 at an interest rate of 4.375%
This payment schedule is based on a $200,000 loan on a $250,000 property.
If an escrow account is required or requested, the actual monthly payment will also include amounts for real estate taxes and homeowner's insurance premiums."
