Question:

What are the specifics of the 1% Option ARM home loan?

Answer:

The 1% Option ARM home loan, also called 1% Pay Option ARM, is a popular way of funding "more home". Often, the 1% Option ARM home loan is advertised for a 5-year period, but not always, during which the1% teaser rate provides for extremely low monthly payments. At the same time extra payments towards the loan balance are allowed. After the set period expires, the loan balance will be recast and a fully amortizing schedule for 30 or 40 years will apply.

With 1% Option ARM, it is possible that unpaid and accrued interest will be added to the principal and will result in negative amortization. The loan balance cannot go over 110% or 125% of the original loan amount.

Even if a 1% Option ARM home loan seems a very convenient option for some borrowers, it can be a very dangerous loan if borrowers were not informed beforehand about the risks of 1% Option ARM home loans.

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