Option ARM (Pay-Option ARM)
An Option ARM (also known as a Pay-Option ARM) is a type of adjustable-rate mortgage (ARM) that allows borrowers to choose from several payment options each month. The payment options include a minimum payment, an interest-only payment, a 15-year payment, and a 30-year payment. The minimum payment is usually less than the interest-only payment, and the interest-only payment is usually less than the 15-year payment. The minimum payment is usually less than the interest-only payment, and the interest-only payment is usually less than the 15-year payment. The minimum payment option is attractive to borrowers because it allows them to make a lower payment each month. However, the downside is that the loan balance increases each month, and the interest rate can adjust after a certain period of time.
History of the Term
The Option ARM was first introduced in the early 1980s as a way to help borrowers who were struggling to make their mortgage payments. It was designed to give borrowers more flexibility in how they paid their mortgage each month. The Option ARM was popular during the housing boom of the early 2000s, as it allowed borrowers to make lower payments than they would have with a traditional fixed-rate mortgage. However, the Option ARM became less popular after the housing market crash of 2008, as borrowers were unable to keep up with the increasing payments.
Comparison Table
| Payment Option | Monthly Payment | Interest Rate |
|---|---|---|
| Minimum Payment | Lowest | Adjustable |
| Interest-Only Payment | Higher than Minimum | Adjustable |
| 15-Year Payment | Highest | Fixed |
| 30-Year Payment | Lowest | Fixed |
Summary
An Option ARM (also known as a Pay-Option ARM) is a type of adjustable-rate mortgage (ARM) that allows borrowers to choose from several payment options each month. The payment options include a minimum payment, an interest-only payment, a 15-year payment, and a 30-year payment. The minimum payment option is attractive to borrowers because it allows them to make a lower payment each month. However, the downside is that the loan balance increases each month, and the interest rate can adjust after a certain period of time. For more information about Option ARMs, borrowers can visit websites such as Bankrate.com, Investopedia.com, and TheMortgageReports.com.
See Also
- Adjustable-Rate Mortgage (ARM)
- Interest-Only Mortgage
- Fixed-Rate Mortgage
- Negative Amortization
- Mortgage Refinancing
- Mortgage Insurance
- Mortgage Points
- Mortgage Rate Lock
- Mortgage Servicing
- Mortgage Underwriting
