ARM COFI advantages
COFI ARM products are a wonderful option if you are interested in provide more opportunities for financially savvy borrowers who seek more customized, and ultimately less costly, home-finance choices. However, because some of the COFI products do not offer rate caps or other key features to protect the borrower, you need to be careful to study the product before you make your choice. The 11th District Cost of Funds is one of the most commonly used ARM indexes, because many lenders believe that an index that moves with their cost of funds reduces their risk. ARMs based on this index can adjust every month, every six months, or every year.Several COFI-indexed ARMs often have payment caps, but no periodic interest rate caps creating the possibility for negative amortization. It is not necessarily a bad thing because you may consider any unpaid interest to be an extended loan at a very attractive rate. If you use them to pay off credit card and/or car debt, it makes the negatively amortizing COFI ARMs a great financial tool for homeowners. In addition, you will always have the option to never increase your loan balance.
Some lenders will allow you to qualify for a larger loan due to this initially lower rate. COFI ARMs may be used for tax planning. Most COFI ARMs are offered with a very low initial rate. The borrower can defer interest payments and at the end of the year, analyze their tax situation. If it serves their tax interests, they can make a lump sum payment toward any interest that has been deferred and deduct it for tax purposes.
One good thing about COFI lenders is that several COFI lenders allow homebuyers with good credit to apply without documenting their income, assets, or source of down payment. This is helpful for self-employed borrowers or those who have jobs where it is difficult to document their income.
There are some great advantages to COFI and ARMS due largely in part to their flexibility. With COFI-indexed ARMs you will usually have a choice of payment options. Besides fully indexed and minimum payment options your COFI ARM will probably have an interest only payment option and you will be able to change payment options every month if you like.
