Posted on: 25th Feb, 2007 01:01 pm
Hi,
We are offered a 1.9% fixed interest rate on a COSI loan for 10 years with a 7.5% annual payment cap. If our monthly payment remains the same each year after the increase, how is our mortgage amortized throughout the individual months. Thanks
We are offered a 1.9% fixed interest rate on a COSI loan for 10 years with a 7.5% annual payment cap. If our monthly payment remains the same each year after the increase, how is our mortgage amortized throughout the individual months. Thanks
Welcome JJ,
The COSI loan will initially provide you with a low interest rate so that you can start off with low monthly payments.
Since your monthly payments will remain same, this means that the increase in payment due to rate increases will be added to your principal loan balance. Hence your loan balance will continue to increase. This is known as negative amortization.
There is a possibility that you may have to pay more than what you owe. However, since there is an annual payment cap, the extra amount that is added to your loan balance will be limited by the cap.
The COSI loan will initially provide you with a low interest rate so that you can start off with low monthly payments.
Since your monthly payments will remain same, this means that the increase in payment due to rate increases will be added to your principal loan balance. Hence your loan balance will continue to increase. This is known as negative amortization.
There is a possibility that you may have to pay more than what you owe. However, since there is an annual payment cap, the extra amount that is added to your loan balance will be limited by the cap.