| An Option ARM (adjustable rate mortgage) offers | | | | their means using traditional loans. Many new |
| four different payment options to borrowers every | | | | borrowers are finding themselves in serious financial |
| month. The purpose of these loans is to lower | | | | trouble as a result of using an Option ARM to buy their |
| mortgage payments and provide more flexibility to | | | | homes and increasing numbers are losing their homes |
| borrowers. The first option is calculated using a thirty | | | | as a result. |
| year amortization table; the second choice calculates | | | | While the “minimum payment” option can |
| payments based on a fifteen year amortization table; | | | | cause a blow-out in your mortgage balance, the other |
| the third is an interest-only payment option which does | | | | ARM options can lead to a payment crisis because |
| not reduce the loan amount at all and the fourth option | | | | your payments can increase dramatically with |
| requires a minimum payment. The minimum payment | | | | increases in interest rates. Considering that most |
| amount is calculated on an often artificially low initial | | | | people who choose an Option ARM mortgage do so |
| interest rate. Unfortunately this can be financially | | | | because they cannot afford to borrow using a |
| disastrous because as the interest rate rises, the | | | | traditional loan, these payment increases can lead to |
| monthly payment does not cover the real cost of | | | | foreclosure and even bankruptcy. |
| borrowing and the gap is added to the principle. This | | | | Before choosing to borrow using an Option ARM, it is |
| means that the loan amount grows and borrowers | | | | very important to understand the terms of the loan |
| can find themselves owing substantially more than | | | | and the associated risks. If you can’t afford |
| they initially borrowed. This is called negative | | | | increases to your monthly payment or need a lower |
| amortization. | | | | payment for a long period of time, do not take out an |
| Option ARMs may be appropriate loans for investors | | | | Option ARM. However, if you intend to turn over the |
| who plan to flip their properties for quick profit or | | | | property quickly or need lower payments for a short |
| homeowners who plan to refinance in the short term, | | | | period of time and then can refinance, an Option ARM |
| however they can be a risky choice for purchasers | | | | may be a good choice. |
| seeking to purchase a home which would be beyond | | | | |