An option ARM loan will be a good fit if you are planning to own your property for a short time, and prefer affordability and flexibility in your monthly payment. The low initial rate is also favorable for people that are on their way to making more income or would like to qualify for a nicer home purchase. The loan is also favorable for who are on irregular incomes such as salespeople and investment bankers who earn commission based income.
While the conditions of an Option ARM loan may differ by lender, more than likely, you can expect to be presented with 4 different options monthly:
Minimum Payment
The minimum Option ARM loan payment is just that, the very least you will owe each month. The monthly payment is set over a period of 12 months based on your initial interest rate (this will change annually and be regulated by a payment cap). The minimum payment may not be enough to pay off the interest charged on the loan. In this case, the unpaid interest will be added to the principal balance owed as a deferment.
Interest-Only Payment
This payment option allows you to avoid deferred interest by paying off the monthly interest amount. This payment option will not reduce principal and the payment may change monthly based on changes in the ARM index.
30-Year Interest and Principal Payment
With a 30-year interest and principal payment, you pay both the principal and interest monthly according to a regular 30 year amortization schedule. The payment is calculated each month based on the chosen Index and margin. An interest and principal payment avoid any deferred interest.
15-Year Interest and Principal Payment
If you can afford higher monthly payments and want to pay off the loan on an accelerated schedule, you an option for the 15-year interest and principal payment. This payment option will allow you to repay the loan in half the time and save more than half the total interest of a 30-year mortgage.
|
