If you are in the process of buying a house, you will quickly discover that you have many excellent mortgage programs from which to choose. However, because everyone has different circumstances, one of the most preferred amenities is flexibility, which is what you would get with an Option ARM. With this type of mortgage loan, you would still have the flexibility associated with a traditional ARM so you know the amount of each monthly payment, as well as four different payment options monthly. Therefore, you can always pay your mortgage in the manner easiest for you.
For example, with an Option ARM, you could make a minimum payment, an interest only payment, a 15-year amortization payment, and a 30-year amortization payment. Although not for everyone, an Option ARM is a great solution for many people. For instance, let us say you work a job based on commission. While most months are great, if you have a bad month, you would have some flexibility so your mortgage payment would not be missed.
For the minimum payment option, this means you would be making the lowest possible payment. With this, keep in mind that the minimum amount would change twice annually but only a percentage of the previous year’s minimum amount. In addition, the loan would be recalculated every five years, which again would allow you to stay on top of your bills. Once the recalculation is complete, the minimum payment would be based on three things – the remaining loan term, the unpaid principal, and the current interest rate.
For the interest only option, you would make a payment equal to the amount needed for repaying the monthly interest. Next are the two, amortization payment options, one for 15 years, and one for 30 years. In this case, you would be making a payment in the amount required to pay the loan off in either 15 of 30 years from the date the loan closed. Of the two options, the 15-year is more expensive but it would also mean the principal balance on your mortgage loan would be paid off quicker.