What Is An Option Adjustable Rate Mortgage

What is​ An Option Adjustable Rate Mortgage?
Getting a​ mortgage for your home means that there are many different possible options .​
An option ARM,​ or​ adjustable rate mortgage is​ one possibility available for financing your new home .​
This mortgage gives you​ flexibility in​ the​ way you​ meet your monthly payments .​
Here are some details that will enable you​ to​ know if​ this mortgage is​ the​ one you​ need to​ purchase your home.
The option ARM's outstanding feature is​ that it​ provides the​ borrower with four different ways to​ make the​ monthly payments .​
This gives you​ the​ ability to​ control the​ way you​ make the​ payments .​
When things get a​ little tight,​ you​ can change the​ payment you​ make during that time .​
The four payment options are as​ follows:
Minimum Payment Option
Once you​ have passed the​ low introductory payments with its special offer,​ you​ can expect that you​ will start paying the​ interest rate you​ received for the​ first year .​
The first year of​ an​ option ARM allows you​ to​ make a​ minimum payment each month .​
This can have an​ interest rate between 1 to​ 4% .​
Some option ARM's may even permit you​ to​ skip a​ payment altogether - remember,​ though,​ it​ gets added in​ somewhere.
It is​ important to​ note that if​ the​ amount of​ your payment does not cover the​ interest for those months,​ it​ does become added to​ the​ principal amount you​ owe.
The following year,​ however,​ the​ interest rate will climb to​ more normal market conditions,​ with a​ max cap of​ a​ 7.5% increase.
Interest Only Option
Another way that you​ can pay on​ an​ option ARM is​ to​ choose the​ interest only option .​
This allows you​ to​ pay the​ interest only each month .​
Notice,​ however,​ that interest only payments do not reduce your principal .​
You can expect that the​ payment size will change monthly based on​ current market interest rates.
30 Year Fully Amortized Option
This option allows you​ to​ make standard payments which will fully amortize the​ loan at​ the​ end of​ 30 years .​
The payment is​ calculated each month according to​ the​ interest rate at​ the​ time.
15 Year Fully Amortized Option
This mortgage is​ based on​ a​ 30 year calculation .​
You are making payments,​ though,​ so that it​ can become fully amortized in​ just 15 years .​
You do have the​ larger payments to​ make,​ but will save a​ lot of​ money by reducing the​ payment period.
It is​ very important,​ especially with the​ first option that you​ watch out for negative amortization .​
While some lenders actually use this term to​ name their product - it​ usually is​ not a​ good thing .​
You can find that your payments get raised very high (unusually so) in​ order to​ bring your payments into a​ fully amortizing status .​
In some cases,​ the​ caps may not apply because there is​ a​ possible resetting of​ loan terms when negative amortization occurs over a​ period of​ time.
Just like with any mortgage purchase you​ make,​ you​ should shop around in​ order to​ find the​ best deals .​
This will mean getting several quotes and comparing the​ various fees,​ interest rates,​ and terms .​
You will also want to​ know exactly what the​ margins are,​ too.
What Is An Option Adjustable Rate Mortgage What Is An Option Adjustable Rate Mortgage Reviewed by Henda Yesti on July 05, 2018 Rating: 5

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