| Option or minimum payment loans usually offer the | | | | first five years. The minimum payment size usually |
| borrower of a choice between several different | | | | increases once a year to a slightly higher level. Often |
| payments. This option is usually available for the first | | | | times this is a 7.5% increase in the payment size. This |
| five years of the loan. | | | | is not a 7.5% increase in the interest rate - just a 7.5% |
| An option payment loan usually comes with the option | | | | increase in the size of the minimum payment. For |
| to make the following payments:regular 30 year | | | | example, if the minimum payment is $1,000 in the first |
| paymentinterest only paymentminimum payment | | | | year than in the second year the minimum payment is |
| A 30 year loan has the highest monthly payment. | | | | $1,075 ($1,000 * (1+7.5%)). |
| After this the interest only payment is second in size. | | | | The following example shows how a $400,000 loan |
| The smallest monthly payment is the minimum | | | | with a 1% minimum rate works: |
| payment. | | | | Loan Amount 400,000 |
| It is important to note that minimum payment rate can | | | | Minimum Payment Rate 1.00% |
| go as low as 1% (some lenders have rolled out 0.5% | | | | Loan Note Rate 7.25% |
| minimum payment rates). | | | | Loan Length (Years) 30 |
| Making the minimum payment can result in "negative | | | | Loan Payment Options |
| amortization". This is when any shortfall in payment | | | | Regular Monthly Payment 2,729 |
| less than the interest-only amount is added onto the | | | | Interest Only Payment 2,417 |
| principal of the loan. Many borrowers prefer having the | | | | Minimum Payment 1,287 |
| lowest possible monthly payment, so they don't mind | | | | Negative Amortization Per Month 1,130 |
| this. Also, their equity in the property may rise faster | | | | Maximum Loan Size |
| than their loan size, so their equity still increases. | | | | Maximum negative amortization limit 115. |
| Minimum payments are typically fixed for each of the | | | | |