[Genewiki-curator] NUMBER ONE Success System

[Tommy Lee]

http://www.noss123.com/


An option ARM provides the option to pay as little as the equivalent of an
amortized payment based on a 1% interest rate,(please note this is not the
actual interest rate). As a result, the difference between the monthly
payment and the interest on the loan is added to the loan principal; the
loan at this point has negative amortization. In this respect, an option ARM
provides a form of equity withdrawal (as in a cash-out refinancing) but over
a period of time.

The option ARM gives a number of payment choices each month (for example,
the equivalent of an amortized payment were the interest rate 1%, interest
only based on actual interest rate, actual 30 year amortized payment, actual
15 year amortized payment). The interest rate may adjust every month in
accordance with the index to which the loan is tied and the terms of the
specific loan. These loans may be useful for people who have a lot of equity
in their home and want to lower monthly costs; for investors, allowing them
the flexibility to choose which payment to make every month; or for those
with irregular incomes (such as those working on commission or for whom
bonuses comprise a large portion of income).

One of the important features of this type of loan is that the minimum
payments are often fixed for each year for an initial term of up to 5 years.
The minimum payment may rise each year a little (payment size increases of
7.5% are common) but remain the same for another year. For example, a
minimum payment for year 1 may be $1,000 per month each month all year long.
In year 2 the minimum payment for each month is $1,075 each month. This is a
gradual increase in the minimum payment. The interest rate may fluctuate
each month, which means that the extent of any negative amortization cannot
be predicted beyond worst-case scenario as dictated by the terms of the
loan.

Option ARM mortgages have been criticized on the basis that some borrowers
are not aware of the implications of negative amortization; that eventually
option ARMs reset to higher payment levels (an event called "recast" to
amortize the loan), and borrowers may not be capable of making the higher
monthly payments; and that option ARMs have been used to qualify mortgages
for individuals whose incomes cannot support payments higher than the
minimum level.
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