Here’s how the MTA option ARM’s payment options change: The interest-only, 30-year and 15-year options will fluctuate each month with the underlying index. In any event, the total interest rate on a loan can never exceed 9.95 percent throughout the lifetime of the loan, as will be specified in your loan documents.

The minimum-payment option will remain fixed at 1.25-percent principal and interest payments for one-year intervals. Once annually, the lender can increase or decrease this payment factor by as much as 7.5 percent of the payment amount, depending upon market conditions. For example, a $1,000 minimum payment could not change by more than $75. A payment increase also can reduce your principal faster, and the payment-factor cap rate provides greater cash flow and financial stability. For at least the past three years, the minimum-payment option has reduced loan principal in that it actually exceeds the interest-only payment option on an annualized basis.

Why it’s beneficial
Another element of an MTA option ARM is that it allows borrowers to control the same asset as a traditional, 30-year fixed mortgage for less money, while they enjoy the same equity appreciation. Considering that real estate in the United States has appreciated an average of more than 7 percent annually for the past 30 years, this extra cash flow has a large advantage. The savings of making a minimum payment of only 1.25 percent vs. a fixed-rate mortgage with 6 percent can be substantial. The funds can be used to pay off higher interest-rate debts such as credit cards and installment loans. They also can be invested in higher-yielding assets and can help make additional principal payments on the mortgage to pay it off in less time than with a 30-year fixed mortgage.

Consider this example: The minimum payment on a $750,000 option loan is $2,499.39. The payment on a 30-year fixed mortgage at 6 percent is $4,496.63 — a difference of $1,997.24 each month. On a 30-year fixed mortgage, borrowers mostly pay the bank interest before principal for the first 20 years of the loan. With the savings of an MTA option ARM, borrowers can pay off their loans in less than half the time of the typical 30-year fixed mortgage.

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