According to BD Nationwide Mortgage, those loan options are as follows:
Pay the full amount, covering both the principal and the interest due for the month.
Pay only the interest for the month.
Pay a predetermined minimum payment amount.
Negative amortization occurs because the minimum payment for the loan is based upon the low introductory rate offered for the first month. The minimum payment amount is adjusted annually, however after the first month of the option ARM, the interest rate will adjust monthly according to one of the following indexes: COFI, MTA or the one-month LIBOR.
Payment option ARMs
are attractive to homeowners with irregular or unpredictable incomes. They also
appeal to those who want to have as much cash flow each month as possible.
However, there are risks involved. If a homeowner consistently pays only the
minimum payment amount, each month the balance on their loan will continue to
grow.
Some loans carry a negative amortization cap (110% to 125% of the original
amount of the loan). Once that cap is reached, the minimum payment may rise. For
the first five years of the loan, the minimum payment can only increase by a
certain percentage. However, after five years, the minimum payment may increase
significantly.
Payment option ARMs have benefits, but also risks. Before getting this type of loan it is extremely important to talk to your mortgage professional about the risks under various interest rate trends.
Home mortgage and real estate related for Home Loan Refinance & Second Mortgages Option Arm Mortgage
Refinance regarding debt consolidation or current home interest rates
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