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Last Updated: May 14th, 2012 - 22:24:01 |
What are options arm home loans and how do they give you the power to choose?
When deciding on a mortgage loan these days, consumers have many programs to select from. One home mortgage choice, the Option Arm will give you the flexibility known for in an adjustable rate mortgage with the safety of having fixed minimum payments. It is called an “Option,” because this type of home loan gives you the power each month to choose from four different payment “Options,” thus you are deciding on the payment that best suits your needs in order to better manage your monthly cash flow. But is the “Option,” the only reason that so many choose Option Arm.
No, in addition to flexibility, this type of home financing loan also carries a
low introductory starting mortgage rate, which allows you to make very small initial payments. And the low qualifying rates permit you to qualify yourself for a bigger house or even a quantity of units.
Any mortgage broker will teach you that there are four payment options:
1. The minimum payment option, which is the lowest payment option you can choose each month.
2. The interest-only payment is the second lowest payment option and is equal to the amount needed to repay the interest due each month.
3. The 15-year payment is the higher of the two and it pays down your loan's principal balance the fastest.
4. The 30-year with fully amortizing payments, you pay both principal and interest and keep your loan on schedule. Your payment is calculated each month based on the prior month's fully indexed rate, loan balance and remaining loan term.
With the fully amortizing payments, you pay both principal and interest and keep your loan for your investment property on schedule.
The next common question that is asked of the mortgage brokerage is which payment option is it best for me to use most of the time. Well, that depends on the length of time that you plan to keep the property. I will break down each of the four “Options,” and the basis for using each one.
The Minimum Payment method used by investment real estate sellers and others who may have an emergency and may not be able to pay the full monthly payment options. By making only the Minimum Payment, you can have the affordability of temporarily avoiding the deferred interest. Each year, you pay a slightly higher minimum payment, by a small percentage. Thus, that first year, you paid your best mortgage rate. Every five years, the loan is recalculated. This helps you continue on track in paying off your home loan on time. After each recalculation, the new minimum payment carries your current rate of interest, your owed principal balance and the remaining loan term. Thankfully, a payment cap serves to limit how much increase or decrease occurs yearly.
The Interest-Only Payment Option, used by some Florida mortgage buyers, is once again good for investors, who want to buy and sell quickly. With the interest-only payment option, you can avoid deferred interest, when the minimum payment is not enough to pay the monthly interest due. However, the low is not available if your interest-only payment shows less than your usual minimum payment. Also, remember, that this option does not bring you any principal reduction.
The 15-Year and 30-Year Amortization home loan payments are the normal, regular payment plans and so will only be covered briefly. This amortization payment is the amount that is needed to pay off people’s investment loans in 15 or 30 years from the date they closed their loan. The 15-year payment always is the higher of the two because it pays down the secured loan's principal balance much faster.
To conclude we ask you, do only real estate investment sellers and people who are having emergencies benefit from Option ARMs? No, of course not. Because of flexibility, Option ARMs can richly serve anyone who wants to consolidate and then become debt free. It is also great for people who have no fixed income, investors, commission making workers, or the self-employed. It also can come in handy with people who have made a major lifestyle change, perhaps a divorce or career change or relocation change. In short, most of you could benefit when you qualify for an Option Arm home mortgage loan.
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