What is a Pay Option ARM loan?
An ARM that allows you to choose among several payment options each month. The options may include (1) a traditional amortizing payment of principal and interest, which might also include a 15-year amortizing payment, (2) an interest-only payment, or (3) a minimum (or limited) payment that may be less than the amount of interest due that month. If you choose the minimum payment option, and the amount is less than your interest-only payment option, the amount of unpaid interest will be added to the principal balance of your loan which will result in Negative Amortization. This means that even after making many payments, you could owe more than you did at the beginning of the loan.
