Option ARMs, often called a Pick-a-Payment, Modified ARM, Pay Option ARM, or Cash Flow ARM, are an increasingly popular loan. These loans are more complicated than a traditional fixed or adjustable loan. It is so complicated that many mortgage brokers do not fully understand the loan and how it can impact their clients. These loans have exploded in popularity in the last few years due to the low minimum payment. Many new options such as 100% financing, fixed minimum payments, and fixed rates have also cropped up. As a result, Option ARMs are also one of the reasons many homeowners today are facing foreclosure.

These powerful loans have changed the lives of many borrowers saving them hundreds and even thousands of dollars each month. Unfortunately, many others are losing their homes because they did not understand the risks of an Option ARM or were misled by a novice or unethical mortgage broker.

Option ARMs are a powerful financial tool that can put you in control of your finances. The power is in the number of payment options you have each month. A typical Option ARM may have the following payments:

• Minimum Payment (Typically 1%-3.95%)
• Interest Only
• 30 Year Amortized Payment
• 15 Year Amortized Payment

Fixed Payment Option ARMs

The Fixed Payment Option ARM  has been around for a while under several different names. This loan fixes the minimum payment for a period of 1-5 years without the typical 7.5% minimum payment increase per year. The Fully Indexed Rate, or rate of interest you are charged, remains adjustable. While the minimum payment remains low, the downside is that, in a rising rate market, you will accrue more negative amortization than with a standard Option ARM.

Fixed Rate Option ARMs

The newest variation is the Fixed Rate Option ARM, often called a Hybrid Option ARM, Power Option ARM or Secure Option ARM. This variation features a fixed minimum payment and a fixed rate for 1-5 years. During this period the start rate ANS fully indexed rate are fixed. In addition, there is no annual 7.5% payment cap. Once the fixed term has ended you lose the minimum payment  This loan provide 5 years of security where you don't have to worry about the rate increasing or your loan recasting sooner than expected. This is a great product in a rising rate environment, as you are protected from rate increases. However, in a declining rate environment, you may get stuck paying more interest than someone with a typical Option ARM whose index is going down each month. Contact me if this loan sounds interesting and you would like me to explain it in greater depth.

Before I recommend any Option ARM to a client I want to make sure they completely understand how this loan works and how to best make it work for them. This may not be the best loan for you. If not, I will be the first one to tell you and then help you find an alternative program.

To learn more about Option ARMs and how you can use this loan to manage your finances and cash flow, request one of my free reports below or register for access to all my free reports, calculators, and more.  

The Straight FAQs About the Option ARM, is just that, Frequently Asked Questions (FAQs). This report will answer most of your questions regarding payments, indexes, margins, and deferred interest.

If you are familiar with Option ARMs, then the second report, Making Your Mortgage Work for You with an Option ARM, covers some more advanced topics such as using an Option ARM as a financial tool to fund retirement or investment accounts, debt consolidation, or investment property purchases.

If you are ready to get started with an Option ARM you can request a quote.