best way to pay off loan interest

Fed's Mishkin says rate cuts 'unlikely' to raise inflation threat Forbes. For example, suppose you have a $200,000, 30-year payment-option ARM with a 2% rate for the first 3 months and a 6% rate for the remaining 9 months of the year.


However, once the 6% rate is applied to your loan balance, you are no longer covering the interest costs. Because payment caps limit only the amount of payment increases, and not interest-rate increases, payments sometimes do not cover all the interest due on your loan.


This can make some people think that even if the rate and payments on their ARM get too high, they can avoid those higher payments by refinancing their loan or, in the worst case, selling their home.

Also you may find it difficult to refinance your loan to get a lower monthly payment or rate. If you get an ARM, you may decide later that you don't want to risk any increases in the interest rate and payment amount. For example, suppose you have a 3/1 ARM with an initial rate of 6%. Sometimes there is a trade-off between having a prepayment penalty and having lower origination fees or lower interest rates.


The resources of the Federal Savings and Loan Insurance Corporation have been exhausted. Recent profit downgrades by US banks with investments linked to subprime loans have worsened the crisis by making lenders less willing to provide credit.

In remarks at the White House, Bush said he would work to "modernize and improve" the Federal Housing Administration "by lowering downpayment requirements, by increasing loan limits and providing more flexibility in pricing.

24 hours After appearing immune to the turmoil engulfing the mortgage market in the United States, China suffered its first serious setback Friday from exposure to subprime loans. Banking experts remain confident that any losses arising from subprime loans suffered by Bank of China, the Chinese bank with the biggest exposure to foreign markets, were unlikely to seriously jeopardize its financial performance.


Payment-option ARMs have a built-in recalculation period, usually every 5 years. ARMs may start with lower monthly payments than fixed-rate mortgages, but keep the following in mind: Your monthly payments could change.

Your payments may not go down much, or at all even if interest rates go down you could end up owing more money than you borrowed even if you make all your payments on time.

If you want to pay off your ARM early to avoid higher payments, you might have to pay a penalty. With an ARM, the interest rate changes periodically, usually in relation to an index, and payments may go up or down accordingly. To compare two ARMs with each other or to compare an ARM with a fixed-rate mortgage, you need to know about indexes, margins, discounts, caps on rates and payments, negative amortization, payment options, and recasting (recalculating) your loan.