OPTION ARM's and Minimium Payments

In spite of all the talk of “bad loans” recently, I still see large numbers of people who can benefit from one of the Cash-Flow Mortgage programs available. Sometimes referred to as an Option Arm or a Pick-A-Pay loan, these programs can provide great opportunities for the right borrower. The problem is that for the past few years Loan Officers have been putting every possible borrower into an Option Arm and selling the benefits of the minimum payment. Not everyone should have a Pick-A-Pay loan.

The Pay Option ARM is a loan that was created to allow homeowners to have more control over their payments, and therefore over their cash flow. I have a very informative report that I have sent to my Inner Circle with detailed information about how the Option Arm loans work, and how to tell if it is right for you. If you are not a member of my Inner-Circle, email me and I will add you, then you too can have the information.

Essentially, you are given payment choices each month. Each month you have the choice between four different payment options: A Traditional 30 year payment, a 15 year payment, Interest Only, and a Minimum Payment

The most important thing to remember is that if you make the minimum payment you are actually paying less than the interest due. In other words, you are deferring interest—or adding to your loan balance. For some this sounds horrible, yet for others it is a good idea.

As a general rule, if you fall into one of the following categories it may be worth considering the possibility of the Option Arm and the minimum payment:

1. If you are in a rapidly appreciating market
2. If your income will increase substantially over the next 3-5 years
3. If you don’t anticipate staying in the home for longer than 5 years
4. If you have another place to put your money, such as an investment or debt payments.

The key is to consider the possibilities. I have several clients who have saved thousands by utilizing these loan programs—but I will be the first to tell you, it isn’t right for everyone.

For more information, drop me a line. I would love to answer any questions you may have. As always you can reach me at jayhart@cottonwoodmtg.com.