1.25 Minimum Monthly Payment

The 1.25 minimum monthly payment option is based on the 1.25% interest rate. This 1.25 minimum monthly payment rate is good for the first 12 months of the mortgage. After the initial twelve months, for the following four years, the payment cap is 7.5% of the previous year's payment. This does not mean the interest rate can increase by 7.5%, but that the payment amount could increase by 7.5%. For example, if a borrower has a loan amount of $100,000, the first year's payment minimum payment would be $333.25. The second year, the payment could increase by 7.5%, so the minimum payment would be $358.25. The third year the payment could increase by 7.5% of the second year's payment, and thus would be $385.11. The payment the fourth year would be capped at $414.00, and the fifth year the payment with a 7.5% increase in payment would be $445.05. After the first five years of the loan, and every five years thereafter, the loan will "re-cast" or re-adjust. The re-cast will be calculated using the fully indexed rate at the time of the recast. (Note: This is an example and may not reflect today's rates.)

The 1.25 minimum monthly payment has the possibility of accruing deferred interest if making this payment every month, because it is generally lower than the fully indexed rate. If and when differed interest reaches 110% of the original loan amount, the borrower will be required to make fully amortized payments. If your home is appreciating rapidly, deferred interest can be offset by the appreciation in property value or capital gains upon the sale of your home. At any time you may make additional payments on top of the minimum payment that will be applied to the principal portion of the loan. The following monthly payment will be adjusted accordingly if payments are made toward principal the previous month. If paying above and beyond the minimum payment, it is possible to make substantial gains on your loan balance.