How do pay option ARM loans work? Is the payment option risky?
Question: “I’m pretty familiar with the concept of adjustable-rate mortgages. But I don’t know much about the pay option ARM loan. Can you tell me how these loans work? Is the payment option strategy risky for the home buyer?” You’re wise to do your research into this home financing method. Many borrowers get themselves into a lot of trouble when using the option ARM loan. In this article, I’ll focus on the two most important factors: (A) how these mortgages work and (B) the potential risks they bring. Let’s start with a basic definition, just we’re on the same page. The Option ARM Defined Option ARM — This is an adjustable-rate mortgage where the interest rate (and therefore the payments) adjusts on a monthly basis. Unlike other loans, the homeowner is given an option on the size of the payment they want to make. Thus, these are also referred to as pay / payment option ARM loans. This brings up the next logical question: What kinds of payment options does the homeowner have? In most
