An option arm mortgage has
four payment options to let
YOU take financial control, allowing you to manage your cash flow and your financial picture on a monthly basis. All four options are available each month.
The four monthly payment options are:
1. Minimum Payment (Less than interest Only Payment)
2. Interest Only Payment (principal balance remains unchanged)
3. Full Principal and Interest Payment based on a 30 or 40 year amortization
4. Full Principal and Interest Payment based on a 15-year amortization
This is a perfect loan for people with fluctuating income levels. It is also great for investors that know what to do with the extra increased cash flow.
Description of Payment Options:
1. Minimum Payment
The Minimum Payment Option keeps your monthly payments manageable. The amount paid is slightly less than interest only and will not pay down the principal. Unpaid interest will be “deferred”, i.e.,
added to the principal balance you owe. This minimum payment can ususally be fixed for 5 to 10 years.
The deferred interest can be paid back at any time without penalty.
2. Interest Only Payment
The Interest Only Payment Option allows you to have
flexible financing and avoid deferred interest.
No portion of the payment is applied to reduce the principal balance of your loan.
3. Full Principal Payment based on a 30 or 40 year amortization
The 30 or 40 Year Principal and Interest Payment Option allows you to build equity with monthly payments equal the interest charged on your loan for the
previous month, as well as enough principal to pay off your loan based on the remaining scheduled term of your
loan
4. Full Principal and Interest Payment based on a 15-year amortization
The 15-Year Principal and Interest Payment option lets you pay off your mortgage quickly.
This option includes all the interest charged on your loan for the previous month plus enough principal to pay off your loan
based on a 15-year term. Unless you make this payment monthly, your loan may be outstanding for more than 15
years. Your payment amount may change from month-to-month based on changes in the Index value used to determine your
Fully Indexed Rate
Advantages:
Compared to typical ARM, an option ARM typically adjusts very slowly.
Minimum payment can free up significant cash flow for investors and people with uneven income.
Disadvantages:
Slightly higher rate on a full principal payment option when compared to a conventional 30 year fixed rate.
Need help?
Determining which program is right for you can be a very difficult task.
Please
contact a Midwest Mortgage consultant and we
will walk you through all the options and help you pick a program that fits your needs.
