Once I googled for Option ARM and the top search result read Nightmare Mortgages. Very … hmmm … intriguing, isn’t it?

Well, as I always say, you have to have a clear idea of how a mortgage plan works. Once you are sure, that you understand it, you can decide for yourself, whether such an Option is likely to become your nightmare.

The Option Adjustable Rate Mortgage offers the borrower several options for each monthly payment. The mortgage contract states what exactly variants are possible. The first one or two months, depending on the contract, the borrower is entitled to a very low interest rate and a very low period payment amount. When this introductory period expires, the rate goes up and each period payment is paid according to the selected option. The usual available options are: a minimum payment, or an interest-only on a 30-year mortgage payment, or a fully amortizing 30-year mortgage payment, or a fully amortizing 15-year mortgage payment. That means that one month you can pay only the interest and the next monthly payment may equal to a monthly payment of a 30-year Adjustable Rate Mortgage with your balance and the rate of the day. If you choose the minimum payment option, which is a really low amount - just imagine what you can do with the “saved” money!!! Where’s the nightmare, you say? Well, it is already there, but it is not obvious yet, that’s why a lot of people make a mistake and agree to these terms without reading the fine print thoroughly. The word “saved” is in quotes only when you read it, not when you hear the broker say it… Read the rest of this article »

The Adjustable Rate Mortgage does not seem to be very attractive to borrowers mostly because of the apparent complexity of its mechanism. When people hear about market indexes, constantly increasing rates and negative amortization, they don’t want to listen to this any more and just go for the good old Fixed Rate Mortgage. Before you follow their easy steps too, consider reading at least this article and make your final choice based on some knowledge, not on the lack of any desire to deal with anything more complicated than a fixed amount to pay every month.

Now, get yourself a cup of good coffee and prepare to learn about market indexes, increasing interest rates and negative amortization.

What’s the most important thing to remember about the Adjustable Rate Mortgage? Well, naturally, that the Interest Rate gets adjusted a number of times within the life of the mortgage, but – now comes the most important thing – it can increase (or decrease) only to the limit specified in your mortgage contract! That means that the lender is not totally free to impose any rate on you any time of the day. That’s the good news. The bad news is Read the rest of this article »