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Payment Option Adjustable Rate Mortgage
Payment-option ARM is an adjustable-rate mortgage that allows you to choose among several payment options each month. The options typically include
* a traditional payment of principal and interest (which reduces the amount you owe on your mortgage). These payments may be based on a set loan term, such as a 15-, 30-, or 40- year payment schedule.
* an interest-only payment (which does not change the amount you owe on your mortgage).
* a minimum (or limited) payment (which may be less than the amount of interest due that month and may not pay down any principal). If you choose this option, the amount of any interest you do not pay will be added to the principal of the loan, increasing the amount you owe and increasing the interest you will pay.
Interest rates. The interest rate on a payment-option ARM is typically very low for the fi rst 1 to 3 months (2%, for example). After that, the rate usually rises to a rate closer to that of other mortgage loans. Your monthly payments during the first year are based on the initial low rate, meaning that if you only make the minimum payment, it may not cover the interest due. The unpaid interest is added to the amount you owe on the mortgage, resulting in a higher balance. This is known as negative amortization. Also, as interest rates go up, your payments are likely to go up.
This is a blog post for Real Estate Professionals, Investors, Landlord, Property Manager, and Property Management Companies. What is Payment Option Adjustable Rate Mortgage is brought to you by SimplifyEm Pay Rent Online and Property Management SoftwareYou might also want to read:
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