Today's LIBOR Rates
1 M |
0.31563 |
 |
3 M |
0.47500 |
|
6 M |
0.68794 |
|
1 YR |
1.06438 |
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Merrill Lynch PrimeFirst® Adjustable Rate Mortgage
February 12, 2009
Overview
PrimeFirst is an adjustable rate mortgage program from Merrill Lynch. It is presented as a loan that can help the borrower “maximize control and flexibility” over cash-flow. PrimeFirst has an “interest only” option for the first part of the loan term, meaning the borrower can choose to only make monthly payments on interest. This can create lower monthly cash requirements as the borrower does not have make payments that go toward principal until the loan’s second phase. There is never any negative amortization.
PrimeFirst is a 25-year mortgage with adjustable rates based on LIBOR. The first 10 years is the interest-only payment option period. The loan is fully amortized (principal must be paid off during this period, along with adjustable interest) during the final 15 years. There is no prepayment penalty so the loan can be repaid at any time.
Program Features
• One or six-month adjustment periods available
• No prepayment penalties
• If payments are made toward principal during the interest-only option period, subsequent interest-only payments will be recalculated monthly based on the new lower principal balance, reducing the monthly payments
• Lifetime rate cap based on the initial rate plus 5% or 12%, whichever is greater. The minimum lifetime rate cap is 12 %.
• Loan amounts available up to $2,000,000 within standard guidelines and up to $5,000,000 case-by-case
• Available for one- to four-unit owner-occupied properties and New York co-op
Conclusion
PrimeFirst is a good example of a LIBOR-based loan that can provide cash-flow advantages and significantly lower interest rates compared to fixed rate alternatives in periods of low to moderate inflation where overall short term rates are low. Merrill Lynch correctly advises that interest rates can vary (due to LIBOR fluctuations), resulting in increased or decreased payments. If the loan is kept passed ten (10) years, payments will rise at the beginning of the eleven (11) year mark as the principal balance is factored into the monthly amount.
As of February 2009, rates remain comparatively high on many types of jumbo loans (loan amounts starting at $417,001. Fixed rate and intermediate ARM jumbos (lower fixed rate for a set period, changing to an adjustable) are still having a very hard time being sold in the secondary market, leading to higher interest rates for borrowers. Merrill Lynch’s PrimeRate program is tied to LIBOR for its duration. At press time, that could create an interest rate 4- 5 % lower than other types of jumbos. On the flip side, the borrower must pay attention to LIBOR and stay attuned to the potential new monthly payment amount once short term interest rates rise significantly and/or principal payments are due.
LIBORATED.com always recommends consulting directly with qualified professionals when considering any mortgage. Our LIBORATED profile can help you determine if a program such as PrimeFirst might work for you.