Payment Option ARM Minimum Payment
An option to make minimum payments on an payment option ARM, which is a complex mortgage product with a temporary low interest rate. After the expiration of the temporary start rate, the borrower retains the option to make a payment equal to the initial payment established by the start rate: the minimum payment option. Unfortunately, there is a high probability that choosing this minimum payment will create negative amortization, where you owe more after making payments than you owed before you started paying the loan back. Investopedia Says:
Making the minimum payment on a payment option ARM may be used by a borrower with irregular cash flows throughout the year. For example, a borrower who receives a large percentage of their annual income in the form of a year-end bonus might make minimum payments for a large part of the year, and then make a single large mortgage payment when they receive their annual bonus. Or, a borrower might make a minimum payment to make a home more affordable while counting on the rate at which the value of their home appreciates to outpace the rate at which negative amortization takes place. Related Terms:
Adjustable-Rate Mortgage - ARM
Deferred Interest
Flexible Payment ARM
Mortgage Index
Negative Amortization
Negative Amortization Limit
Payment Option ARM |