12 MAT vs. Interest Only Mortgages.

There's no doubt the 12 MAT, pick-a-payment mortgage is one of the hottest mortgage programs going. At Mortgage Match, inquiries about this mortgage program are increasing daily. However, many of the prospective borrowers seeking 12 MAT mortgage information would be just as well off with an interest only mortgage, and perhaps even more so with a zero down, interest only mortgage.

There are several similarities between these two programs. First, both mortgages revert to a full principal and interest mortgage after a set period. Typically, this set period is 5 years, but it can be longer or shorter depending on the borrower's profile and financial goals. Next, both programs give the borrower payment options every month. While the 12 MAT may seem it has greater flexibility than a straight interest only mortgage, the options providing the borrower with choices in paying principal and interest payments over 30-year or 15-year terms are actually available with both mortgages.

What the interest only mortgage lacks is the ultra-low "start rate", which can be as low as .95%, but more about this later.

Another similarity in both mortgage programs is their lack of desirability as long-term mortgages. Most smart borrowers who are obtaining these mortgages have plans of keeping them for 3-5 years, and replacing them either through refinancing or the sale of the property. Neither of these mortgages are really suitable as mortgages a borrower wants to keep for 10 or more years.

Both mortgages provide the borrower with high LTVs (Loan-To-Value Ratios). In fact, borrowers can get up to 100% financing with either program. However, going after a straight interest only mortgage will give most borrowers far more choices in lenders' programs... since there are far more lenders offering zero down, interest only mortgages than there are lenders doing 100% 12 MATs. This greater choice will usually result in a lower ARM rate for the straight, interest only borrower as well.

Now, back to the low start rate... this is what provides the real attraction to most borrowers for the 12 MAT. This low, start rate translates into equally low mortgage payments. However, it should be noted, this low start rate may also provide negative amortization. Because, the low payments based on the start rate won't be covering the mortgage's required interest payments. So, it could be hazardous to a borrowers' financial health to make only the start rate payment consistently, as this could put them "upside down" in their investment, and have them ultimately owing more than the property is worth. Indeed, this would be the wrong way to utilize a 12 MAT program, and most smart borrowers will avoid the mistake of only making the minimum payment requirements. But, it should be noted that an interest only payment on either program will never result in negative amortization.

Here's a short and simple summary and comparison between the 12 MAT and a zero down, interest only mortgage. Hopefully, the following may provide some insight as to what program better fits your needs and goals.

Credit Requirements:
12 MAT: Requires a minimum 620 midscore FICO for a 95% LTV mortgage.
Interest Only: Requires a minimum 570-580 midscore FICO for a 100% LTV mortgage.

LTV Availabilties:
12 MAT: The vast majority of 12 MAT lenders offer up to 95% LTV... a couple offer 100% LTV.
Interest Only: 100% LTV financing is fairly standard with this program.

Monthly Payment Options:
12 MAT: Provides 4 choices per month - Start rate, interest only, 30-year and 15-year terms.
Interest Only: Provides up to 3 choices per month - interest only, 30-years, and often 15-year terms.

Interest Rates:
12 MAT: Several ARM choices tied to several different indices.
Interest Only: Several ARM choices tied to several different indices. (Some borrowers may obtain better rates on the ARM portion with this program.)

Loan Amounts:
Both programs available up through Jumbo and Super Jumbo loan amounts.

There are finer points associated with both mortgage programs in terms of qualifying guidelines such as income documentation, reserves, and FICO scores. The best way to evaluate your match to either or both programs is to consult with a Mortgage Match Senior Loan Consultant.

To learn more about 12 MAT and/or Zero Down, Interest Only Mortgages, please go to The Complete Mortgage Guide by clicking on it.