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Points Explained |
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What are morgage points and when, if ever, does it make sense to pay them? |
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Fees Explained |
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What are the 'real' costs of my Morgage? This will help explain exactly where your money is going -
and where it shouldn't be going...
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Learn More
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Morgage Glossary |
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Become an informed borrower by familiarizing yourself with common terms used throughout
the morgage process...
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Option ARM Morgage Information
Option ARM Morgages are loans that typically offer up to 4 different monthly payment options. These 'options' are:
The 'Minimum Payment' - This is a payment amount that is less than the amount of interest and principal due that would otherwise be due. Using this option causes Negative Amortization
The 'Interest Only Payment' - This is an option that permits you to pay only the interest portion of your payment with out having to pay the principal portion. This keeps your payment low with out causing negative amortization. However, it does not cause your loan balance to decrease over time.
The 'Fully Amortized Payment' - This option allows you to pay the full amount of interest and principal due as amortized over a 30 year term. Using this option will pay your loan balance down like a traditional Adjustable Rate Morgage.
The '15 Year Payment' - This option will allow you to pay more into principal to help 'catch up' if you have been continually using the low payment options. The amount of interest and principal due is the same as if the loan were amortized over a 15 year term.
The primary advantage of an Option Arm Morgage is the tremendous flexibility the multiple payment options provide. Often times the minimum payment due is equivalent to an interest rate of 1% or less so it can really increase the affordability of homes or help you transition through particularly tough economic times. However, there are risks that come with this. The two greatest considerations should be that of Payment Shock and that of Negative Amortization.
Payment Shock refers to the amount your monthly payments may increase once you can no longer use the Minimum Payment option and must begin paying down the loan. This is usually required after 5 years. For people that rely on a payment based on 1% the 'payment shock' can be dramatic...so prepare yourself beforehand and use the Minimum Payment option sensibly.
Click Here for information about Negative Amortization
All in all, Option ARM's can make excellent loans for people able to manage the risks of this type of loan and are looking to maximize the benefits made available by having ridiculously low monthly morgage payments.
Other Important Morgage Terms
Non-Conforming Morgage - A Mortgage that does not comply with the guidelines established by
Fannie Mae or Freddie Mac generally because it is too large or on account of poor credit or inadequate income and
asset documentation.
Morgage Note - The legal document stating the terms of a debt and a promise to repay it.
Morgage Origination Fee - Fee charged by a lender or broker for processing a loan, often given as a percentage of
the loan amount.
Owner Financing - A purchase in which the seller provides all or part of the financing for the buyer's loan.
Payment Cap – Pre-determined limit on the amount by which a borrower's Adjustable Rate Morgage payments may
increase, regardless of the actual rise
in interest rates.
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Option ARM Morgage - A Definition Plus The Pros & Cons of Option ARM Morgages
We don't sell your information to multiple morgage brokers and call it 'competition'
