Option ARM Mortgage Loan - Is This Really for You?

What happened to the days of a 15 or 30 year fixed rate mortgage loan? Ultimately this is the safest and most popular mortgage loan product in our industry, but new mortgage products are hitting the market, and we in the mortgage business are using them to our advantage; ever heard the radio advertisement saying, "buy a $200K home for $643.28 per month; call XYZ Mortgage Company to apply"? The product used in this ad is called an Option ARM, and I feel it's my duty as a mortgage professional to tell you what this product is in case you happen to meet up with that loan officer whose only concern is to make a fee, and not have your best interest in mind.

Here's how this program works: when you pay your mortgage back you're given 4 monthly payment options. Here are the 4 options:

1. Year 1 minimum monthly payment = your principle and interest payment calculated at a 1.00% rate with a fully indexed rate of roughly 5.00% (the other 4% gets tacked on to the principle making your balance go up with each payment you make). Example: $200,000 @ 1.00% interest = $643.28 per month.

2. Interest only payment. Example: $200,000 X 4.997% / 12 = $832.83 per month (no principle would be paid down, but the principle wouldn't go up either as your paying all the interest monthly).

3. 30 year amortization based on the fully indexed rate of 4.997% = $1073.28 per month.

4. 15 year amortization based on the fully indexed rate of 4.997% = $1581.27 per month.

Now that you know how an Option ARM works is this really for you? As for most of us no: why? Most of us will pay the minimum payment due and let the interest build up on the balance. If you live in a region where home values are rapidly increasing that's okay, but if you live in a region where home values aren't increasing so fast you could be in trouble. If you try and sell your home you could be bringing thousands of dollars to the closing table to payoff this mortgage because your home didn't sell for enough money to cover the balance owed.

If you use this type of program to buy more home than you can afford it's going to catch up with you in the long run. My advise is to stick with what you can afford, if that's a 30 year fixed mortgage on an $100,000.00 home then so be it.

Who can benefit from an Option ARM? Are you just graduating college and starting an entry level job, and you know your income is going to greatly increase in the next couple of years? An Option ARM could be for you. Do you need to reduce your monthly payment temporarily due to financial hardship or debts getting out of control? An Option ARM refinance could be for you. Are you a smart investor and would take your monthly payment savings and invest it in the market for future financial security? An Option ARM refinance could be for you.

In summary, my job as a mortgage professional is to show you a mortgage program that best fits your needs. If you're considering an Option ARM mortgage loan, but you're not as disciplined with your finances as you feel you should be I wouldn't recommend this program for you. However, you might use an Option ARM to your advantage if you're a shrewd money manager and you plan to stay in your home for the long term. Good luck on your mortgage refinance or new home purchase.

The author of this article is Marc Sisk, I'm a mortgage professional with 7 years of loan origination experience; my web site's title is Mortgage Calculator | Refinancing Home Loan | Mortgage Lender. By being an affiliate branch of a large mortgage lender I'm able to do mortgage loans in most of the United States. Visit my web site to see if we're licensed in your state. This article may be reused and reprinted with the author's permission. Please email me the link to this article for viewing.

---

Build Your Own Dream House!

So you're thinking about building your own house, are you?... Read More

What is a Capped Mortgage?

A capped mortgage is a variable rate mortgage with a... Read More

5 Tips for Savvy Use of Your Home Equity Line of Credit

Tapping your home's equity to pay college expenses, consolidate credit... Read More

California Refinance - Refinancing in California

The real estate market in California is booming. Home values... Read More

Refinancing Your Home Mortgage Loan

You're considering refinancing your home mortgage loan to save money.... Read More

Mortgage Advice To Make Mortgages A Really Smooth Ride

Mortgages are easy as long as you understand them well.... Read More

Why Its Important to Get Pre-Approved

Having a pre-approved mortgage will give you the confidence of... Read More

Home Loans -- The Hot New Product? The 30-year, Fixed-rate Mortgage

In recent years, the mortgage industry has introduced dozens of... Read More

Choosing The Right Mortgage For You

This article will help you understand the differences between a... Read More

How To Find A Mortgage With Bad Credit

Shopping online for mortgages ought to be trouble free, even... Read More

How to Get Your Home Mortgage Loan

If you are thinking of purchasing a new home soon... Read More

Poor Credit Mortgage Reigns High Among Mortgages Available to Bad Credit Borrowers

Like a big brother keeping notes of the erring behaviour... Read More

Applying for a Home Mortgage Loan Online - The Pros and Cons

If you have considered applying for a home loan mortgage... Read More

Stated Income Mortgage Loan - Get Approved Online

A stated income or no doc mortgage loan allows individuals... Read More

Mortgage Basics for First Time Home Buyers

Anyone planning to take out a mortgage for the first... Read More

Cardinal Principle of Homeowner Personal Loans ? It is a Solution for Any Sort of Financial Funding

You bought a house and you were promoted to the... Read More

Advantages and Disadvantages Of A Reverse Mortgage

Betty and John, are in their mid-seventies and are currently... Read More

A Simple Way to Save Thousands on Your Mortgage Charges

How many times do you check you restaurant bill? If... Read More

How To Save Thousands in Interest on Your Home Mortgage!

So you have a mortgage on your home or planning... Read More

Mortgage Info You Can Actually Understand!

This is a great time to Refinance Your Home or... Read More

Low Income Home Loans - FHA and VA Mortgage Loans Can Help You Get Approved

If you have low income and are looking to get... Read More

Home Buyers Face Decisions that Affect Their Long-Term Financial Picture

Taking the step for prospective home buyers.into home ownership is... Read More

Mortgage Information

A mortgage is borrowing money using property as a security,... Read More

Home Loans For People With Poor Credit - Understanding The Requirements For a Subprime Mortgage

Home loans for people with poor credit demand that you... Read More

Private Mortgage Insurance Basics

Will you be asked to pay Private Mortgage Insurance, or... Read More

How To Save Hundreds A Month On Your Mortgage

When it comes to American spending habits, the sad truth... Read More

Mortgage Lead and Mortgage Leads

A mortgage lead is an exciting thing because you are... Read More

Fixed Versus Adjustable Rate Mortgages

Which One Should You Choose?Choosing between a fixed rate loan... Read More

Getting The Best Rates On Mortgages And Loans

With an impending up-grade to the family due in a... Read More

Types of Mortgages

Here is a useful guide to the different types of... Read More

Home Equity Loans ? There?s Gold In That There House

To paraphrase an old familiar quote that goes "there's gold... Read More

Understanding Fixed-rate Mortgages

A fixed-rate mortgage is a mortgage on which the interest... Read More

Mortgage Debt Elimination

The prospect of mortgage debt elimination is something that many... Read More