This spreadsheet assumes the COF Index will not increase or decrease for 30 years. The COFI as of 12/2006 was 4.346%, I'm using a 2.150% fixed Margin which creates a *fully-indexed rate of 5.901%. The payments assume maximum annual payment increase each year (7.5% payment cap); actual results may vary and may affect amortization schedule as the Index will change. 

Now, let's assume you were to place the extra cash-flow (or difference in monthly pmts. between this COFI Option ARM vs. a 6.5% fixed-rate and your were to earn just 5% over the same five year period, instead of having an extra $62,022, your would instead have an est. $71,028. Moreover, if you didn't touch this $71,028 for the next 25 years, it would grow to:

This is called the "Rule-Of-72" - {if you earn 10% annually (reinvesting the dividends), it must double every 7.2 years.} I.e., if you were to earn a 5% rate-of-return, your money would double every 14.4 years.

To learn more about how this mtg program works, click on the Option ARM monthly payment page or just hit the Back link below.

***10 - This spreadsheet assumes the "Scheduled pmt" will be met in year ten, or all "deferred" interest has been repaid. Again, in this example we are assuming the fully-indexed rate will remain the same of 30 years. This is the fully amortized or P.I. payment (Index + Margin) also called the full "Principal and Interest" pmt. and the Scheduled pmt. This pmt option is achieved by adding the Margin to the current monthly Option ARM index X the outstanding loan balance.  If you always pay the fully-Indexed Rate, you will never have deferred interest and the 7.5% yearly payment increase will not come into play.  You are allowed to make this pmt. every month beginning with month two.  If you make this payment, your loan balance would always decline regardless of the movement of the Index. This is because your loan balance should be lower each month (even if the Index were increasing) as the Lender would re-adjust your next "Scheduled payment" higher to compensate for the higher Index. Moreover, your future Scheduled pmts. could actually decrease even if the Index were increasing.

Here is an example:

$250,000 mortgage balance on 01/01/04, an Index of 1.229% and a Margin of 2.75% for a fully-indexed Rate of 3.979% (2.75% + 1.229%.)  This would create a "Scheduled payment" of $1,190.51.  Let's assume on 02/01/04 the Index increased by 0.05 bps. to 1.234% for a fully-indexed Rate of 3.984% (2.75% + 1.234%.)  Because the new loan balance would be lower, i.e., $249,638, the new monthly payment would actually drop by $1.72 or ($249,638 x 3.984% = $1,188.79.)  (There have been times {when the Index was decreasing over a long period of time} when the Lender had to lower the "Scheduled pmt." because too much rapid amortization was occurring. In that event, the Lender would begin to lower the "Scheduled pmt" on a yearly basis via the yearly 7.5% payment cap until it was back on its normal amortization period, i.e., 30 or 40 years.) 

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AAMI is not a certified Financial Planner, therefore it would be wise to seek out a CPA or certified Financial Planner who could recommend where to invest this extra cash i.e. making the "minimum" pmt. vs. making the "Scheduled" pmt. Consult your regulation Z as this is not offer to lend.  Equal Opportunity Lender. For illustration purposes only.