Option ARMS

Option ARMs

Option Arms offer deferred interest solutions to borrowers allowing the choice between one of four payment options each month.  The choices are as follows:

• 15 year principle and interest payment
• 30 year principle and interest payment
• Interest only payment,
• Deferred interest payment.

If you choose to make the deferred payment, you will not pay off all of the interest that has accrued on the loan that particular month.  Consequently  your mortgage balance will increase by that outstanding interest amount, bringing future payment obligations higher.   If you choose the Interest Only option, your loan balance will not decrease. The first two mortgage options are the only that amortize, or pay down, the principal.

This product is often misused and has earned  a bad name in the last few years.  If used correctly in a stable housing market, the options associated with this program are second to none. With that said, an astute understanding of the details of this program is necessary. Make sure to discuss, among other things,  the adjusting rate, recapture points, rate adjustment cycles, caps, etc. with your loan officer.