Question:

What is Pay Option ARM mortgage?

Answer:

The Pay Option ARM mortgage (also called Option ARM mortgage, or even Neg Am mortgage) is just a loan that has different payment alternatives to the borrower.

The lender offers the borrower the following payment alternatives:

  • Fully amortizing schedules for different periods - 15 to 40 years;
  • Interest-only option with which only the interest accrued for the month is paid;
  • Minimum payment for limited time - from several months to several years, which results in negative amortization and subsequently enlarges the loan balance and makes it more difficult to repay.

What a Pay Option ARM mortgage in essence is helps people living in high cost areas, commissioned people and investors achieve greater flexibility and afford a better house with the presumption that when the balance is recalculated they will have an option out  - either refinance, or be able to afford to make principal and interest payment.

Warning!

To make a Pay Option ARM mortgage work for you, you need to be informed about your options and the intricacies of the loan. Attend mortgage counseling and inquire the broker or lender about prepayment penalties and your options after recalculation occurs.

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