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orion
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What can you guys tell me about this institution. I am tring to refin. an apartment complex and this people are offering me a 1.10% and reduced my monthly payment to aproximately 50%. It sound a bit fishy!

Again the name of the company is.l..

First Capital Financial.d

thank you for your help.

Merry Xmas Doc Don, Morrow, Wolfie.

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I can't comment on First Capital Financial (it's also a very common name), if you have their website we could probably tell you what type of lending institution they are. My first inclination is to say they sound like a broker.

You own an apartment complex or you own a condo in a complex?

The ~1% payment loan is called a Pay Option ARM, or simply the Option ARM. It is called that because typically you have 3+ payment options, an interest only option (based on the rate you are actually borrowing your money at, much higher than the ~1%), a minimum payment option (often can result in deferred interest if the minimum payment is less than the interest only payment option, this option is based on that low ~1% rate), and an amortizing payment option (any payment above the interest only payment option).

The actual interest rate isn't 1.10%, it's more around 5-6%. The minimum payment option is a payment that is calculated at a fully amortized payment of 1.10% (not to be confused with an interest rate of 1.10%, this is a payment option equivalent to a 1.10% fully amortized payment).

The minimum payment usually increases 7.5% each year to prevent mass amounts of deferred interest from occuring. Deferred interest is interest you aren't paying now, so it is converted to principal that is added to your balance owing.

Your interest rate normally adjusts monthly, but there are options for longer durations between adjustments.

Typically the higher the margin, the more liklihood of a prepay penalty. But not all Option ARM loans are required to have a prepay penalty. Your loan officer can discuss the different options.

There is no balloon payment at the end, but without knowing the limitations for these loans you could experience sudden payment shock. Full informational disclosures of these types of loans are available from any lender that offers them. The disclosures are typically 2-3 pages long, so you can tell there is a lot more information about these loans than anyone of us can put into a post.

In laymans terms, there are two parts to this loan. Think of it as a monthly adjustable mortgage with a payment "limiter" so you can avoid immediate payment shock. There is the minimum payment which is calculated entirely seperate than the "note" rate (this is the rate which your money is being borrowed at). The mimimum payment rate typically starts out at 1%-1.95% and every 12 months the minimum payment amount increases 7.5% over the previous minimum payment. This option usually becomes unavailable after the 5th or 7th year. You can defer interest up to (depending on the lender) 110%, 115%, or 125% of the original loan balance before the minimum payment option becomes unavailable.

You'll need to weigh out several things before choosing one of these Option ARM mortgages over a traditional short term ARM or other type of mortgage.

- How important is the 1-1.95% minimum payment option to you?

- If the fully indexed rate increases over what you could've gotten on a 3 or 5-year Interest Only ARM, will you be OK with that?

- If Option ARM rates do increase will you be comfortable making a higher interest only, or fully amortized payment each month?

- If not, will you be comfortable deferring interest onto your principal balance by making the minimum payment?

My take? These loans are good for:

Fluctuating Income - People that have income that varies from month to month often prefer knowing that they can pay less when times are tough and more when business is better. Commission, Self-employed, seasonal and gratuity based positions are good for this loan.

Landlords- This loan carries attractive terms on Investment properties. If a renter does not pay or the property is vacant longer than expected, the minimum payment can help keep the cash flow loss to a minimum.

Investors - Because of the ability to increase cash flow, this loan can appeal to the savvy investor. If you can make a safe 10% investment from the cash flow savings on the MTA mortgage rate, you can make money while taking advantage of the mortgage tax advantages.

Future Income - People that are going to increase their pay over the next 5 years and wish to live in a more expensive home now. These people can make the minimum payment until they get the raise or income that they are expecting in the future.

I used to like this mortgage a lot, but since the current note rates on these mortgages are around the same rates one could obtain on a short term fixed ARM or not too much lower than a 30-year fixed rates, it's application is limited.

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Yes I own the apartment complex, (4 rooms) and the amount of the original loan was for $240K

This guys send me a letter from First Capital Financial (www.firstcapfin.com) the letter says...

We are happy to offer you the "possibility" of reducing your monthly payments for about 50% starting with a 1.10% interest.

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Active License

Licensed: Jun 29 2004 (Lender/Broker)

603A141 - California Finance Lender

FIRST CAPITAL FINANCIAL RESOURCES, INC.

400 NO. BRAND BOULEVARD, #600

GLENDALE, CA 91203

Means they are licensed by the department of California Department of Corporations and their loan officers, unfortunately, are not legally required to obtain or have any professional licensing that enables them to originate mortgages. They have their own standards, which could be pretty high, but ultimately are legally allowed to hire almost anyone to originate your loan. Their company name hasn't been licensed long but that doesn't mean the people running the show aren't experienced or don't know what they are speaking about.

From their website they appear to have relationships with several "investors" which products they re-package under their own name and then sell as their own products. For example they take Countywide's Option ARM loan program and then re-sell it as First Capital Financial Option ARM program, same guidelines, rates & terms might be a little more or less attractive. Countrywide allows this because they know they won't capture all of the market with their marketing, so they develop relationships on a correspondent level (where the loan is underwritten and docs are drawn in another lenders name, such as First Capital Financial, then sold to Countrywide after the "loan package" is put together, could be days or could be weeks) and also wholesale (where brokers sell Countrywide's products but is underwritten by Countrywide and the docs are drawn in Countrywide's name). Both avenues, rather than going to Countrywide directly, have become increasing popular alernative ways to obtain a mortgage over the last half a dozen years; mainly because of the service level such lenders & brokers provide.

Why are you interested in refinancing? Are your current terms not so attractive?

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This guys send me a letter from First Capital Financial (www.firstcapfin.com) the letter says...

We are happy to offer you the "possibility" of reducing your monthly payments for about 50% starting with a 1.10% interest.

Be careful, please! Before you sign anything consult with your attorney.

Find out about that "starting with a 1.10% interest". Is that some "Introductory-Interest Rate" to be increased at a later time? Take that contract to your lawyer for review prior to signing.

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If your credit is good you might want to consider getting a home equity loan/line of credit to get the equity out of the 4-unit property - refinancing a 1st mortgage isn't always the best solution. The home equity loan/line of credit usually carries fewer fees - I hear USAA has some good 2nd mortgage products.

How much would the 4-unit appraise for? Do you live in one of the units? What is your credit like?

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It looks like you have a bit of equity in your home. I'm guessing you are looking to get equity out to use as a down payment on a new investment property. One way is to refinance your existing mortgage with cash-out and the other like I described is a 2nd mortgage of some variety, the former usually carries higher closing costs but offers/requires new terms.

Are you happy with the terms of your current mortgage on the 4-plex? What are they? Have you considered a 2nd mortgage instead of refinancing? Your credit is great, but that can mean different things to different people, do you have any negatives and do you know what your scores are?

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All of my 3 scores are in the mid 700's. No negatives, (had some buy manage to get them off) The terms are fine now. I just want to use the equity for another property/business. The terms are a fix 6.7% interest rate. Have not considered a 2nd mortagage yet, becacuse I do not have enough info on it.

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700 is a great score, your definition of great credit is the same as mine. There might be some room to improve on the 1st mortgage terms but not a whole lot (you probably would see around 6.25-6.75%). The benefit of a 1st mortgage refinance in your situation would be that you'd be getting the cash out at a rate similar to the 6.7% you have now rather than probably a rate around 8% if you got a 2nd mortgage. You could also elect different terms, for example a mortgage with an optional interest only payment in case one of the units isn't rented for awhile it'll allow you to make the interest only payment instead of the fully amortized payment. But like I said before the refinance would have some costs involved whereas the 2nd mortgage wouldn't have as much or any at all. You'd need to speak to a loan officer to get terms & rates particular to your situation but getting the equity out shouldn't be a problem.

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I would like to pass on an attitude from some investors I have talked with. They think that each property should carry itself.

They would get a 2nd on the lowest leveraged property they have. Use that as a down payment. Since they don't seem to buy properties that are priced at full market, this gives them the down payment needed to make the deal. Then when the dust clears, they refinance the new property-getting rid of the "interium" financing.

Just a thought.

Charles

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I would like to pass on an attitude from some investors I have talked with. They think that each property should carry itself.

They would get a 2nd on the lowest leveraged property they have. Use that as a down payment. Since they don't seem to buy properties that are priced at full market, this gives them the down payment needed to make the deal. Then when the dust clears, they refinance the new property-getting rid of the "interium" financing.

Just a thought.

Charles

I like that, how come i didnt think of that???

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