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Option Arm Mortgage

Posted by  on Apr 16, 2009
 
If you are looking into getting a mortgage, one good option is to get an Option ARM mortgage. Whether you get Washington mortgage, Virginia Mortgage, West Virginia mortgage or South Carolina mortgage, an Option ARM mortgage could be a great option for you. If you decide to get an Option ARM mortgage, keep in mind that with most Option ARM mortgages, your minimum payment might change each year, it can only increase a certain percentage of the previous year's minimum payment amount.

Then every five years, your minimum payment is recalculated to help you stay on track to pay off your loan. After each recalculation, your new minimum payment will be based on your current interest rate, your unpaid principal balance and your remaining loan term.

However, the payment cap will not apply. The interest only payment on an Option ARM mortgage is the second lowest payment option and is the amount needed to repay the full interest due each month. No principal is paid down unless you choose to include an additional amount. Any additional amount on top of the amount needed to cover the interest will be applied to your principal.

If you decide to make the thirty year amortization payment on your Option ARM, you're paying an amount equal to what is needed to pay off your loan in thirty years, based on the initial fixed interest rate and current loan balance.

If you decide to make the fifteen year amortization payment, you're paying an amount that is needed to pay off your loan in fifteen years based on the initial fixed interest rate and current loan balance.

Keep in mind that flexibility alone makes an Option ARM mortgage an excellent choice for borrowers who don't have a fixed income or for people with fluctuating income-like people who work on commission or self employed borrowers.

It is also good to remember that without a fixed income, it can be hard to meet a mortgage payment on time during slow months at work. Say you have a bad month of commission-sales are down; you have to fix your car; and finances are pretty tight. With an Option ARM loan, you can choose to make just the minimum payment to get you through the month, and then make a larger payment when things pick up.

Having a safety net like this is much less stressful than falling behind on your mortgage payments. This is the kind of loan that is for clients that can soundly manage their finances.

People who are at least somewhat knowledgeable when it comes to things like managing and investing their money. This loan might be perfect for someone who is in sales and works on commission and who knows how to get by when sales are down. This is not the kind of loan for people who may have lots of debt and are looking to only pay the minimum payment all the time.
Your minimum payment on Option ARM loans may not fully cover the interest that accrues monthly. This is known as deferred interest. If the minimum payment doesn't cover the entire interest owed, it gets tacked onto your loan balance which means you can get into trouble very quickly, if you don't know what you are doing. Your loan balance can actually increase as you make these low payments.

In addition, you can elect to use the minimum payment as often as you like, but if used too often without making some larger payments in between, you could end up with a mortgage balance that is higher than the value of your home.

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