Option ARM is one of the adjustable-rate mortgage with four monthly payment options and an interest rate that could change every month. Such loan programs are right for you if you’d like to own your property only for a short time, and prefer affordability and flexibility in your monthly payment.
Option ARM loans have four major types of payment options:
Minimum Payment
A minimum-payment loan where you don’t even pay enough to cover that month’s interest, with the unpaid portion being added to the principal increasing the amount you owe. Some loans will even let you skip a payment altogether with the entire interest charge being added to your principal.
If you make the minimum payment after the end of your initial interest rate period, which usually holds only for the first 1 to 3 months, it may not be enough to pay all of the interest charged on your loan for the previous month and the unpaid interest will be added to the principal balance you owe (will be deferred).
Interest-Only Payment
An interest-only loan, where you pay enough to cover the interest but none of the principal.The interest-only payment option, however, is not available if the interest-only payment would be less than the minimum payment. Please note, that this payment option does not result in your principal reduction.
Fully Amortizing 30-Year Payment
A conventional 30-year-loan in which your payment that covers the interest and a little less of the principal.Your payment is calculated each month based on the prior month’s fully indexed rate, loan balance and remaining loan term.
Fully Amortizing 15-Year Payment
A conventional 15-year loan in which your payment covers all of the interest and some of the principal.
Please note, that this payment option is offered only on the 30-year (or 40-year) term. It will cease to be an option when the loan has been paid to its 16th year.
These options should be clearly marked on your loan statement, so it is very easy to figure out how much you should pay each month. Just enter the correct amount in the payment coupon section of your statement.
