Payment option arms offer up to four different payment options each month that gives you the ability to choose the payment that best fits your financial needs that month; The minumum payment - Interest Only Payment - Fully amortized payment (30 or 40 year term) - Fully amortized 15 year payment.
One con of the the pay option arm is that if you make the minimum payment option each and every month, you will most likely incur negative amortization. Negative amortization is when your loan balance actually increases instead of decreases. Negative amortization occurs because the minimum payment that is required is not high enough to cover the interest portion of the payment. Therefore, please understand how the Pay Option ARM works and that your mortgage loan balance can actually go up instead of down which can eat away at the equity you have available in your home.
Because of its flexibility, the Pay Option ARM it can be catered to meet the needs of many borrowers.
To fully utilize the benefits of a pay option ARM it takes a lot of control and common sense. The last thing that you want to do is take the money you save by making the minimum payments and buy a depreciating asset such as a car or boat!
The pay option arm can be very useful for savvy investors. The low minimum required payment means increased cash flow can be used for other investments. And because some pay option arms have introductory fixed rates for up to 5 years, an investor can determine how much the additional leverage of deferred interest will cost in the long run.
People with fluctuating incomes can benefit from the Option Arm because it allows more payment options each month.