Payment Option ARM: Negative Amortization Mortgages How Do These Refinance Loans Work?
July 17th, 2008
A payment option ARM is an adjustable rate mortgage with a low initial monthly payment that will increase each year for the first five years. Some banks, like World Saving Bank, call these “Pick a Payment” mortgages because they offer payment options to help you budget your monthly cash flow. These payment option mortgage loans are different and a bit more complex than other products, because you can choose the payment you wish to make each month. Some of these payment options involve paying less than the interest, which means an increasing mortgage balance instead of the principle being paid down. There are inherent risks to this, but you have more flexibility and they may be a good decision if your home equity increases faster than the negative amortization.
A payment option ARM gives you these monthly payment choices:
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