| A payment option ARM is an adjustable rate | | | | rates improve. You may also qualify for higher loan |
| mortgage with a low initial monthly payment that will | | | | amounts and there are no balloon payments. |
| increase each year for the first five years. Some | | | | The risks however are higher with an option ARM |
| banks, like World Saving Bank, call these "Pick a | | | | than with many other loans. John Dugan, the head of |
| Payment" mortgages because they offer payment | | | | the Office of the Comptroller of Currency, which |
| options to help you budget your monthly cash flow. | | | | regulates financial institutions, said in a recent speech |
| These payment option mortgage loans are different | | | | before the Consumer Federation of America. "The |
| and a bit more complex than other products, because | | | | fundamental problem with payment option ARMs, |
| you can choose the payment you wish to make each | | | | other than the growing principal balance due to |
| month. Some of these payment options involve paying | | | | negative amortization, is payment shock." Your |
| less than the interest, which means an increasing | | | | payments may change over time and there is a |
| mortgage balance instead of the principle being paid | | | | potential for higher payments if rates increase. |
| down. There are inherent risks to this, but you have | | | | You also will have more difficulty getting a second |
| more flexibility and they may be a good decision if | | | | mortgage behind negative ARM loans. If you are |
| your home equity increases faster than the negative | | | | hoping to use your home as a source of equity, you |
| amortization. | | | | may want to consider a standard variable rate |
| A payment option ARM gives you these monthly | | | | mortgage or a fixed-rate mortgage. This way you will |
| payment choices: | | | | be building equity that can be used for a credit line or |
| · Principal & Interest (Fully Amortized | | | | other secured loan for improvements or even debt |
| Payment ) | | | | consolidation. |
| · Interest Only | | | | An option ARM can be a confusing mortgage and you |
| · Negative Amortization (Paying less than the | | | | may want to read as much literature on it as you can. |
| interest) | | | | Washington Mutual mortgage has some more |
| · Option ARM MTA | | | | complete explanations on their website. With a little bit |
| · Option ARM COFI | | | | of reading, you can decide if the option ARM is right |
| The benefits of an option ARM are low payments and | | | | for you. |
| the fact that rates and payments may go down if | | | | |