COFI is an index as is LIBOR. Your loan is a negative amort loan. Rates have been going up if they cotinue to go up your rate will go up every month but your payment will stay the same.
Your rate will beased on the Index if the rates on that index go up so does your rate. Lets say that you do this today and rates continue to go up at the end of the first year your rate will be 9.35%. Then next year your rate will max out at 11%. (These are based on the info that you have provided.)
So in a very short time you could be at 11% and owe more on the property than what you paid. What a deal!
But if rates go back down you will have a very low rate. But are you willing to take the risk?
I was just introduced to a COFI loan program and have never heard of it until today.
The particulars are that it offers a first year rate of 1.85% or something like this and then a maximum payment increase of 7.5%/per year and a maximum rate increase of 11%. I have done some research in the archives here and it seems that there is the potential for negative amort.
However, does the payment necessarily go up 7.5% per year? Is 11% the maximum interest rate that could be charged on this? Im trying to figure out the potential downsides to this type of program and I just want to be sure.
Finally, what events trigger increases in the interest rate on something like this…is it the Feds actions, 10 year treasuries? Or is it not that easy…just trying to get a “feel” for what forces make this thing move.
Finally, Finally, in the current environment of rising rates and an improving economy and a heavy spending government, are these still attractive options?
Please do your home work before you decide and you may want to know the actual rate and not the start rate. As difference between start rate and actual wil build into your principal and that is called negative amotization i.e the start rate is not actual rate. When you compare this program, try to compare the actual rate to other programs.
The program works great if you need cash flow right now and are sure about property value appreciation in the future to take off the effect of negative amortization.
The COFI index are based on saving rates and less volatile. As long as you have a good reason to get them and know all the details, it can work for your situation.
They do take stated income with business card as proof but are particular about appraisals and LTV’s