Posted on: 15th Jul, 2009 10:34 am
My Parents have a conv jumbo pay option ARM loan, their payments are $2600-$3000 a month and have an adjustable interest rate which at times has gone up to 8.25%.They have a prepayment penalty which is 6 months advance interest. The loan was for $360,000.00 and it is now $382,000 because they pay the minimum payment.Is there anything that someone can recommend?
I would suggest that your parents try to atleast make the Interest Only payment each month, to avoid any further increase in their principal. If that interest only payment is out of reach, they should consider refinancing. Although the prepayment penalty may look expensive, the insecurity they have with that loan is priceless, as it may harm their future finances if not managed correctly. This loan will eventually require the Principal & Interest Payment option, which may be out of their comfort zone.
another issue is that if they continue to defer interest and home values continue to decline, it may erode their opportunity to refinance the home when the penalty expires.