Payment Option ARMS

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This Adustable Rate Mortgage is a slightly different version of the common ARM.  Like the typical ARM the interest rate is determined by adding the margin and a specified index (examples of most common indexes used: MTA, CODI, COFI, COSI) to arrive at a fully indexed interest rate, which is fixed for a specified period of time. The name “Payment Option” comes into play in the way this ARM is allowed to be re-paid on a monthly basis. The borrower will have the “option” to pay one of 4 payments on their monthly mortgage statement. 

The payment options are listed below:

1. Minimum Payment
2. Interest Only Payment
3. 30 year fixed Payment
4. 15 year fixed Payment

The minimum payment option is the lowest of the 4 payments and is comparable to making a minimum credit card payment because you are paying neither the principal nor the entire amount of interest due on the loan. The interest that does not get paid gets added back into the interest due on the loan and this increases your actual loan balance - This is called negative amortization, also known as deferred interest.

The interest only payment avoids you deferring any interest, but at the same time you are not making any payment towards your principal. This interest only payment will be your second lowest payment option. As with most interest only payment loans, there is a clause in the mortgage note that will disclose how long you may make these interest only payments.

The 30-year payment or 30-Year Fully Amortizing Payment is the conventional mortgage payment that most people are used to making with partial payment going towards principal and part towards interest. Consistently paying your full monthly payment will pay off the loan in full at the end of the 360th month. The 15-year payment or Accelerated Payment Option will payoff the loan in 15 Years - both principal and interest are being paid the same way as with the 30 year loan. Consistently paying your full monthly payment will pay off the loan in full at the end of the 180th month.