Is Pick a Payment Mortgage Loan Good Deal?

Interest rates have been rising over the last year or so, especially for the adjustable rate mortgages which have escalated 1% or more. First time home buyers are being squeezed by higher rates and they are looking for programs with lower payment options. The Pick a Payment plan offers a riduculously low rate of 3.40% (APR 7.43%) with zero down payment and NO PMI but there is a catch. The fully indexed rate or what I like to call the "real rate" is based on an index plus margin which currently equals 7.30% and the difference of 3.90% is tacked on to your mortgage balance. For example, if you want to purchase a house for $200,000, your minimum payment would be $887 per month plus taxes and home insurance..Wow! But $330 per month of interest will be added to your mortgage if you make the minimum payment and your balance would be approximately $204,000 after the first year. Now, this may not be a bad scenario if your home goes up in value at least $10,000 which it should and you plan on refinancing within 1 to 2 years. Remember, you can always make the full interest payment due and avoid having your balance go up. Worst case scenario, you stay in the home 1-2 years and you will probably break even. This loan could be good for a couples where one of the two is still in school and their income will increase once they graduate in a year or two or commissioned sales reps whose income is unpredicatable and they need the flexibility of lower payment options at certain times of the year. Personally, I believe the Pick a Payment loan or any program is better than renting unless you live with your parents for free but sooner or later you will have to hit the road and make it on your own.