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COSI — Option ARM

This COSI (Cost Of Savings Index) based Adjustable Rate Mortgage offers the borrower several payment options. These options include a minimum payment and a principal and interest payment that is adjusted monthly. Under certain conditions the borrower may be offered an interest only payment option.

The interest rate on the loan is the sum of the COSI index plus a margin. The margin will not change throughout the term of the loan. The index value will be adjusted monthly, which will cause the interest rate to be adjusted monthly.

The minimum payment option is adjusted annually with a payment cap adjustment of 7.5% of the prior year's payment. Every five years the payment cap is suspended in order to insure that the loan will be paid off at the end of the loan term. Because the interest rate will be adjusted monthly, the minimum payment may or may not cover the amount of interest being charged. If the minimum payment does not cover the amount of interest being charged, paying the minimum will result in negative amortization. This simply means that the balance on your loan will increase in the amount of the difference between the minimum payment and the interest charge on the loan that month.

The principal and interest payment option is available every month. Since the interest rate is adjusted monthly, this payment is adjusted accordingly. This payment option will pay the loan off based on a 30 year amortization.

The interest only option is not available every month. This option is only available when the minimum payment does not cover all of the interest charge that month.