Customize Your Borrowing Power with Option ARMs

By Kelly Richardson
LoanPage.com Columnist

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You're an investor who wants to secure a low-rate mortgage until you find a buyer for your property. Or, you'd like to take advantage of the equity built up in your home for property improvements. Or maybe you're a contractor whose monthly income fluctuates. Introducing the option adjustable rate mortgage.

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Since their introduction only a few years ago, option ARMs have gained popularity across the nation. As the real estate market has cooled considerably, lenders have come up with some new ways to attract borrowers. The option ARMs allow investors and refinancers to control their monthly payments and get the most from their financial situations.

Option ARMs: The Choices

  • » 15 Year Payment. This option allows you to put your payment schedule on turbo boost, saving you thousands in interest and building your equity.
  • » 30 Year Payment. With the standard option, you will know exactly how long it takes to pay off your loan and exactly how much it will cost.
  • » Interest Only Option. Increase your monthly cash flow by paying just the interest on the loan. Perfect for investors looking to keep payments low.
  • » 1% Minimum Payment. For the largest savings option, the 1% minimum option means you'll just pay 1% in interest each month.
As with any mortgage deal, there are drawbacks. The option ARM is generally friendlier to those homeowners who only intend to keep the home for a short period of time.

Option ARMs: The Drawbacks

  • » Payment Shock. In some instances, a minimum payment option ARM can suffer a sudden increase in monthly payments. This most often happens at either 5 or 10 year intervals.
  • » Negative Amortization. Any time you're dealing with an adjustable rate mortgage, the interest rate can flip the formula. Any unpaid interest is then added to the principle, causing you to hold a note more expensive than the value of your property.
Make sure you discuss the option ARM with your lender before you make a move. This will keep you from getting yourself into unstable financial territory.

Sources
Housing and Urban Development
Pay Option ARM Loans Gain Popularity For California Refinance

About the Author
Kelly Richardson covers the real estate scene in major cities across the country. His articles appear in educational journals, periodicals, and e-zines.

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