What is the Prime Rate? read here

What is COFI? read here

What is CODI? read here

What is 12 Month Treasury Average? read here

What is COSI? read here

What is 6 mo. LIBOR? read here

Ellis Act (San Francisco) click here

Owner move-in Evictions

What is the difference between the annual percentage rate and other interest rates?

The annual percentage rate (APR) includes all the costs of credit; other interest rates do not. For example, the "simple" interest rate is the one usually shown on the mortgage document. It does not reflect additional costs to cover such items as "points" (fees charged when the mortgage is closed) or mortgage insurance. If an ad does not include the APR, it does not tell you everything you need to know about the cost of credit. For example, suppose you had to choose between a 9 percent simple interest rate and a 9 percent APR on a 30-year loan. Also, suppose the house cost $110,000 and you made a $10,000 down payment, leaving $100,000 to be financed. Because of the small down payment, many lenders would require you to buy mortgage insurance, often costing one half of one percent of the loan balance. With a 9 percent simple interest rate, the extra cost for the mortgage insurance, and other loan origination fees, your monthly payments might be as high as $841. But with a 9 percent APR, which includes the cost of mortgage insurance and other loan origination fees, your monthly payments should not exceed $805. The difference between these two rates could be $36 a month and thousands of dollars over the life of the loan.

What should I look for in ads offering "creative financing"?
Creative financing plans typically include lower payments in the earlier years of the financing plan, interest rates that can change during the entire term of the loan, or some combination of these features. Look for the following information in the ad, or ask the lender these questions:

• Will the interest rate or the monthly payments change during the term of the loan? In some loans, a below-market rate and lower payments apply only for the first few years, but higher rates and payments follow for the remainder of the loan term.

• How will the new interest rate or the monthly payments be calculated? The increased rate and payments are stated in advance in some mortgages. In others, they are tied to certain indexes and depend on future market conditions. In these loans, the amount and frequency of the changes in your interest rate and payments also depends on the terms of your loan agreement.

• Will the advertised monthly payments be large enough to pay off the mortgage? Some mortgage plans offer low monthly payments even though the interest rate is fairly high. If these monthly costs are not enough to repay the loan amount and the interest charges, the difference may be added to the principal. In some plans, you could owe more at the end of the mortgage term than at the beginning.

• Will you have to refinance the mortgage after a few years? If a large or "balloon" payment is due after a few years and you do not have the necessary cash, you may have to refinance the mortgage. If you do refinance and interest rates have risen, you may have to make much higher monthly payments than you had planned.

How can I tell if the advertised rate includes monthly payments or interest rates that will change?
Phrases such as "effective rate," "adjustable rate," or "flexible payments" indicate that the credit terms may change. If you see any of these phrases in an ad, find out more about the credit terms. For example, if an ad offers a "7% effective rate," look for other information, such as the APR, to tell you the full cost of credit.

What is an ARM (adjustable rate mortgage)?

A mortgage where the interest rate is not fixed, but changes during the life of the loan in line with movements in an index rate. You may also see ARMs referred to as AMLs (adjustable mortgage loans) or VRMs (variable-rate mortgages).

All about ARMS here

NEGATIVE AMMORTIZATION TABLE (PDF Format. You will be needing an Acrobat reader to open this file). Click here to get Acrobat Reader.

SEE SAMPLE HERE

ARM BOOKLET (NOTE: The booklet is close to 10MB. Please save the file first in a temporary folder before opening. Do not open the file within your browser. You will need an Adobe Acrobat Reader to open the file for viewing.)

Download here

• Option 1: Minimum Payment Due
• Option 2: Interest Only Payment
• Option 3: 30-Year Full Principal and Interest Payment
• Option 4: 15-Year Full Principal and Interest Payment

• A fixed interest rate for an initial 1-month period; thereafter the interest rate may change monthly
• A minimum payment amount that adjusts on an annual basis subject to a 7.5% payment change cap
• A 7.5% payment change cap limits how much the minimum monthly payment can increase or decrease from the previous minimum payment, except on the fifth year of your loan and every five years thereafter*
• A lifetime interest rate cap that protects you by limiting how high your interest rate can go

(During the initial interest rate period, Option 1 represents a full principal and interest payment; therefore, Options 2 and 3 are not applicable.) Option 1:

Minimum Payment Due
This option gives you more cash now and keeps your monthly payments manageable

• Payment changes annually and is calculated using the initial interest rate for the first 12 months
• The minimum monthly payment is usually recalculated annually thereafter; and is based on the outstanding principal balance, remaining loan term and prevailing interest rate
• 7.5% Payment Change Cap limits how much this option payment can increase or decrease each year

(During the initial interest rate period, Option 1 represents a full principal and interest payment; therefore, Options 2 and 3 are not applicable.)

Interest Only Payment
At those times when the minimum monthly payment is not sufficient to pay the monthly interest due, you can avoid deferred interest by paying the minimum monthly payment plus any additional interest accrued during the month.

• Payments remain manageable, with no change in your principal balance for that month

(Option 2 will not be offered if the interest only payment is less than the minimum payment due.)

Option 3: 30-Year Full Principal and Interest Payment
This is the fully amortized payment based on a 30-year loan.

• Calculated each month based on the prior month's interest rate, loan balance and remaining loan term
• Pays all of the interest due and reduces your principal, to pay off your loan on schedule

(Option 3 will not be offered if the full principal and interest payment is less than the minimum payment due.)

Option 4: 15-Year Full Principal and Interest Payment
For faster equity build-up, quicker payoff and substantial interest savings, choose the largest monthly payment option.

• Calculated to amortize your loan based on a 15-year term from the first payment due date

HOW TO UNDERSTAND YOUR CREDIT REPORT by Pat Curry of Bankrate.com

The lender told you to get a copy of your credit report as part of the pre-qualifying process for a mortgage. The purpose, he said, was to see how your credit looked and to clear up any errors that might be in the report. But now that you've got it, there are an awful lot of numbers, abbreviations and terms you've
never seen before. Trade lines, charge-offs, account review inquiries -- how do you read this thing? First off, there are three major credit-reporting agencies in the United States: Experian, TransUnion and Equifax. Order a copy of your credit report to review.
Thanks to a new federal law you'll now be entitled to one free credit report from each of the main credit reporting agencies per year. The program rolled out across the nation region by region with all Americans eligible on Sept. 1, 2005.
The reports will not automatically be sent out. Each consumer must request their reports one of these three ways. Go to www.annualcreditreport.com, which is the only authorized source for consumers to access their annual credit report online for free; call (877) 322-8228 or you may complete the form on the back of the Annual Credit Report Request brochure, and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA, 30348-5281. One more caveat: You'll be able to order all three credit reports at one time or at different times
throughout the year. It's your choice. But, be sure to order from the centralized agency. If you go directly to the credit reporting agencies, you will be charged unless you fit another criteria for a free report.
If you want to review your credit reports more frequently, you can order directly from the credit reporting agencies via their Web sites, by phone or mail. Costs vary from state to state, but in most states, it can cost up to $9.95 to get your report. TransUnion, Equifax and Experian all allow you to review your report online.
"Looking at one is a useless endeavor; you need to look at all three," says Howard Dvorkin, president of Consolidated Credit Counseling Services in Fort Lauderdale, Fla. "People tend to pull one and think everything is the same on all of them. That's not normally the case." The reports will have different information because it's a voluntary system, and creditors subscribe to whichever agency they want -- if any at all. Read more here.

Introductory Rate ARM's

Most adjustable rate loans (ARMs) have a low introductory rate or start rate, some times as much as 5.0% below the current market rate of a fixed loan. This start rate is usually good from 1 month to as long as 10 years. As a rule the lower the start rate is the shorter the time before the loan makes its first adjustment.

Index
The index of an ARM is the financial instrument that the loan is "tied" to, or adjusted to. The most common indices are the 1-Year Treasury Security, LIBOR (London Interbank Offered Rate), Prime, 6-Month Certificate of Deposit (CD) and the 11th District Cost of Funds (COFI). Each of these indices move up or down based on conditions of the financial markets.

Margin
The margin is one of the most important aspects of ARMs because it is added to the index to determine the interest rate that you pay. The margin added to the index is known as the fully indexed rate. As an example if the current index value is 5.50% and your loan has a margin of 2.5%, your fully indexed rate is 8.00%. Margins on loans range from 1.75% to 3.5% depending on the index and the amount financed in relation to the property value.

Interim Caps
All adjustable rate loans carry interim caps. Many ARMs have interest rate caps of six months or a year. There are loans that have interest rate caps of three years. Interest rate caps are beneficial in rising interest rate markets, but can also keep your interest rate higher than the fully indexed rate if rates are falling rapidly.

Payment Caps
Some loans have payment caps instead of interest rate caps. These loans reduce payment shock in a rising interest rate market, but can also lead to deferred interest or "negative amortization.” These loans generally cap your annual payment increases to 7.5% of the previous payment.

Lifetime Caps
Almost all ARMs have a maximum interest rate or lifetime interest rate cap. The lifetime cap varies from company to company and loan to loan. Loans with low lifetime caps usually have higher margins, and the reverse is also true. Those loans that carry low margins often have higher lifetime caps.

Standard ARMS and the Differences

A few options are available to fit your individual needs and your risk tolerance with the various market instruments.

ARMs with different indexes are available for both purchases and refinances. Choosing an ARM with an index that reacts quickly lets you take full advantage of falling interest rates. An index that lags behind the market lets you take advantage of lower rates after market rates have started to adjust upward.

The interest rate and monthly payment can change based on adjustments to the index rate.

6-Month Certificate of Deposit (CD) ARM
This program has a maximum interest rate adjustment of 1% every six months. The 6-month Certificate of Deposit (CD) index is generally considered to react quickly to changes in the market.

1-Year Treasury Spot ARM
This program has a maximum interest rate adjustment of 2% every 12 months. The 1-Year Treasury Spot index generally reacts more slowly than the CD index, but more quickly than the Treasury Average index.

6-Month Treasury Average ARM
This program has a maximum interest rate adjustment of 1% every six months. The Treasury Average index generally reacts more slowly in fluctuating markets so adjustments in the ARM interest rate will lag behind some other market indicators.

12-Month Treasury Average ARM
This program has a maximum interest rate adjustment of 2% every 12 months. The Treasury Average Index generally reacts more slowly in fluctuating markets so adjustments in the ARM interest rate will lag behind some other market indicators.

Balloon Mortgages

Balloon loans are short term mortgages that have some features of a fixed rate mortgage. The loans provide a level payment feature during the term of the loan, but as opposed to the 30 year fixed rate mortgage, balloon loans do not fully amortize over the original term. Balloon loans can have many types of maturities, but most balloons that are first mortgages have a term of 5 to 7 years.

At the end of the loan term there is still a remaining principal loan balance and the mortgage company generally requires that the loan be paid in full, which can be accomplished by refinancing. Many companies have other options such as a conversion feature at the end of the term. For example, the loan may convert to a 30 year fixed loan at the thirty year market rate plus 3/8 of a percentage point. Your conversion can be guaranteed based on certain criteria such as having made your last 24 payments on time. The balloon mortgage program with the conversion option is often called a 7/23 Convertible or 5/25 Convertible.

ANATOMY of AN ADJUSTABLE RATE MORTGAGE (Source:eRATE.com)

To determine the rate on your adjustable mortgage, you first need to understand how an ARM works.

The following terms are integral to an ARM:

Fully Indexed rate - the rate you must pay, barring any periodic caps, in order to fully amortize or pay off the loan.

Margin - the fixed component of your ARM loan, constant throughout the life of the loan.

Index - the variable component of your ARM loan, changes on a monthly basis. Examples of indices include the Cost of Funds (11th District) , One Year Treasury, Monthly Treasury Average (MTA), 1 Year Treasury Average, CD, LIBOR , etc.

INDEX + MARGIN = FULLY INDEXED RATE

You should be familiar with the following ARM terms:

Teaser Rate - (aka your loan's start rate) the initial rate on your adjustable, prior to its first adjustment date, typically 6 months to a year.

Lifetime Cap - the maximum rate that your adjustable may climb to.

Floor Rate - the minimum rate that your adjustable may fall to.

Periodic Caps - the maximum percentage that either your rate or payment may change in any given year or specified time period. (See Interest Rate Cap and Payment Cap).

Interest Rate Cap - a periodic cap describing the maximum percentage that your rate may change in any given year or specified time period. Interest capped ARM's typically do not have negative amortization.

Payment Cap - a periodic cap describing the maximum percentage that your payment may change in any given year or specified time period. Applies to ARM loans with the potential for negative amortization.

Rate Change at the First Adjustment Date - usually applies to intermediate ARMs and can exceed the annual or semi-annual caps. Ask what it is.

Negative Amortization - occurs when the effective interest rate associated with a payment cap on an ARM is less than the fully indexed rate. In other words, the minimum payment allowed by the lender is less than the actual payment that is due. This difference or spread is then added onto the borrowers loan balance and rather than amortizing or paying down the loan balance, the loan balance actually grows.

When rates are on the rise many homeowners decide that they would rather have a fixed rate mortgage. The dilemma they find is that the fixed rate they wish to refinance into is also going up. If you have an intermdiate ARM that is in its initial fixed period you may want to refinance out of it before the first adjustment. Be sure to find out how much your rate can go up at the first adjustment. Some loans have a max adjustment of 2% while some go up by as much as 5%.