Real Estate And Mortgage Section

Real Estate And Mortgage Section (REAMS) consists of information relating to real estate and mortgage financing… with emphasis on FHA 203k financing.


Option ARM loan- Whether to own a home or to dispose it!


Current Mortgage Rates & Market Data

An Option ARM loan is the type of mortgage loan in which the borrowers can choose their payment options. And the interest rates are adjustable. You are free to opt for either a fully amortizing payment, a minimum payment or payments towards interest amount according to your budget for a particular month. The option ARM loans are referred to as ‘Payment option ARM’, ‘Cash-flow loans’, ‘Pick a payment loans’ or ‘1% mortgage loans’. The loans can be used only if you need flexibility in the terms and payments.

It is not however, advisable to take this loan for the purpose of purchasing a more expensive home than you could afford. While the flexibility of the loans is quite impressive, option ARM loans can be very risky. If you are not able to make bigger payments, you will not be able to build equity in your home. It is natural for anyone to choose smaller payment. You will owe more on the house by the end of the month than at the beginning of the month. This will also extend the period of repayment. It is not possible to keep paying small amounts forever. You are required to make more towards the personal loans with bad credit amount gradually to settle the loan completely.

The risks associated with the offer

Due to negative amortization, you owe more on your home, say 120% or so. Every 5 years or so, your loan will be recast and you can see that the guaranteed minimum payment gets increased sharply. You are sure to be in trouble if you are not able to manage the increased amount of monthly payments. You will end up selling the house to settle the debts. By this time, your loan balance would have been greater than the value of the home due to negative amortization. You will be in a position to write a check to completely settle the debts due to option ARM loan.

In some of the option ARM loans, there is a cap on the rate of interest to set some limit to keep it from getting high. By this plan, the borrowers will be certain that their payment will not go beyond certain level. There are options to pay the monthly payment and pay extra amount for covering the interest to avoid negative amortization. The personal loans no credit check is preferred by many due to the low monthly payments. Many homeowners feel that with lower monthly payment, they can make additional interest payments whenever possible, to minimize the balance of the loan. This can be considered good choice if the homeowners are confident of making more payments in future to settle the loan.

If it is not possible to afford the increased monthly payment amount as necessary, there is the risk of losing the home. The owners who occupy their homes benefit from option ARM loans as the value of the home is almost always appreciating. Those who do not have regular fixed income also benefit from this loan that has payment options associated with the loans. Whether the ‘option ARM loan’ will be advantageous to you or not, can be understood by making calculations as to your needs, income and affordability to make repayments as agreed. A discussion with financial experts will help you make your decision and enjoy the benefits in option ARM loans.

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Category: fha