Option ARM Mortgage
Option ARM mortgages are the most complex of any mortgage product. Itís extremely important to fully understand the way an Option ARM loan works. Also, itís very important to understand all the risks and how they may impact you at a future date. Option ARM are generally based on the Moving Treasury Average Index (MTA Index) or the 1 month London Interbank Offered Rate (1 month LIBOR) Both of these indexes move together in general and may up or down. Either index may shoot up or down aggressively within a very short time period.
The interest rate on an option ARM adjusts monthly while your payment adjusts only once each year. Generally Option ARMs have several payment options that the borrower can choose. They include basing their payment on a 30yr term, 15yr term, interest only on the true rate, or a 1% amortized over 30yrs. This last option is most enticing because itís the lowest possible payment you can have on a mortgage today. After the first year the payment itself may go up by up to 7.5%. While your payment has fixed terms your true rate would dictate a much higher payment. The difference of these payments is added to your mortgage balance. Thus from the start of the loan you are in a negative amortization situation. After a certain defined time period the loan becomes fully amortized while the rate continues to adjust. At this point the monthly payment may be several times your initial payment.
Option ARM Loans are certainly not for everyone. If you think an Option ARM are be right for you, LowerRates.com can help you obtain the best possible Option ARM mortgage with the lowest mortgage rate for your new home purchase or refinance. LowerRates.com works exclusively with top nationwide direct mortgage lenders. Please complete our online mortgage quote form to obtain a rate quote and pre-approval for your new purchase or refinance.
