COST OF FUNDS (COFI) - PAYMENT CAPPED ADJUSTABLE RATE

The payment capped adjustable rate loan is one of the most popular programs for home buyers. This program allows for a very low initial payment rate, often below 2%, to allow for low payments during the early period of home ownership.

One variation of this loan, referred to as C.O.D.I. is essentially the same product exactly, but substituting World Savings Cost of Deposit Index, which is a certificate of deposit index.

Each month, the customer receives a payment coupon stipulating a minimum monthly payment which must be made to make the loan current. In early years of the loan, these minimum payments may be close to interest only loan payments. Not to be confused with specific interest only loans , these loan types are designed to pay off the loan in full during the term of the loan (which is typically 30 years). Product variations of the this loan type allow for a 40 year loan term. Please consult LenderDave for additional details on 40 year loan types and products offerings.

After the first year, the payment will increase the minimum payment increase amount which is 7.5% of the prior year payment. This is NOT 7.5% added to the rate, but 7.5% of the payment, added to the prior year's minimum payment, at each increase from year to year. Example, on a payment of $ 1000 per month in year one, the minimum payment in year two is $ 1075 per month. Initially, if making only minimum payments, the customer's payment will increase from year one through year five, or perhaps longer. Specific loan disclosure forms will demonstrate the use and function of the minimum payment and will vary according to the index used, starting rate, the current index at the time of application and funding, and the term of the loan. Each case is individually unique.

The key advantage to the this loan type is that it allows the payment of a minimum payment, at the discretion of the borrower, while overcoming an obstacle, funding a remodeling project, handling college savings plans, funding retirement savings plans, or making a family budget adjustment during a crisis. This unique feature allows for flexibility unlike all other loan programs and types.

The loan has life cap maximum rate in all cases to protect the borrower against rate increases.

Down payment variations may allow as little as 5% down.

The product allows buyers with large down payments, such as 20% down, to avoid the documentation necessary for most transactions. In addition, most of these products provide for stated income forms. This means that the applicant merely states their income, but does not document it with tax returns or pay stubs.

These " Quick Qualifier " loan programs and versions eliminate the need for tax returns and W-2 forms when the customer has a down payment amount of 20% of the purchase price of the home. In some cases 25% may be required in order to satisfy requirements, because each case is custom tailored to the applicant. The goal of the program is to make sense of a business relationship between the customer and the bank. A requirement is that the buyer have moderate to good income and good credit, generally.

However, credit exceptions are granted for home buyers and home refinance customers who may have had specific one time problems affecting their credit which are no longer applicable to their circumstances and may no longer affect their ability to repay the loan. An excellent example is a one time injury which affects the applicant's income temporarily. The applicant may have a temporary history of many late payments but can document the reason(s) for the problem(s) and the action steps taken to avoid continuing negative impact on his or her credit report.

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