Pay Option ARM program. - The pay option ARM program can be an excellent mortgage program for someone who needs to pay down credit card debt, but cannot qualify for a Cash-Out Refinance.

Even if your loan does not contain an explicit biweekly features, the combination of minimum monthly payments and limited annual prepayments directly to principal are a powerful tool for improving your equity position in your home.

A Pay Option ARM is one of the fastest growing mortgage products available. This program allows the borrower the most flexibility with their mortgage payment each month by allowing, usually, 3-4 different payment options on each mortgage billing statement each month. Option 1 is generally the lowest payment option which can incur negative amortization. Option 2 is usually an interest only mortgage payment. Option 3 may be a 15 year mortgage payment. Finally Option 4 may be a 30 year mortgage payment. The Pay Option ARM is great for self-employed and commissioned borrowers who may not receive a steady income. This gives these borrowers the opportunity to pay incredibly low monthly mortgage payments during slow months and pay their normal payments during the other months.

Most homeowners consider Pay Option ARM for one or more of the following advantages this mortgage program offers:

1. To be able to buy more home with the same income
2. To be able to allocate a bigger portion of income towards other debts
3. To have control over tax deductability of mortgage interests from year to year
4. To off set seasonal incomes
5. To take advantage now of anticipated increase in income

The pay option ARM program frees up a tremendous amount of cash flow.

Pay option ARM mortgages can be used to refinance your current mortgage or to finance a home purchase. Pay option ARMs are also known as option ARM, 12 month MTA, cash flow ARM and other titles.

Pay option ARMs are a great way to manage your cash flow. However, keep in mind that, when you make minimum payments, you are not paying all the interest due for that month. This unpaid interest is added to your mortgage balance.

This loan very popular with borrowers who are self-employed, work on commssion or have variable income sources. They enjoy the payment flexibility that the PO ARM program offers. In a month when income is low and money is tight there is the minimum payment to fall back on as conversely in a month where things are good they can make a higher payment.

Pay option ARMS usually have hard pre pay penalties that range from 1-3 years. Ask your mortgage broker about different pre pay options and how they will fit into your future financial plans.

Pay Option Arms are good for investment properties, where a higher cashflow is desired in the first few years of ownership.

A few words of caution: If you choose to pay the minimum payment option, your payment will not cover the cost of the interest payment and your loan balance will increase. This is called Negative Amortization. If you find yourself with a negative amortization option arm, you'll be adding to your mortgage debt every month. The difference between the minimum payment and the interest-only payment is not discarded - it goes back into your principal loan amount - in effect growing the amount you owe every month. It's best to only use the minimum payment option in the case of a tight money month.

Option arms or the pick your payment loan can adapt to fit your lifestyle. They offer flexible payment options and qualification standards. Investors like them for there low payments and cash flow potential.

Pay Option Arms are fantastic opportunities for Apprentice workers to purchase a home they will be able to afford 3-4 years from now when there apprenticeship is done, right now.

Option arms are portfolio products often held by the lender. They are not purchased by Fannie Mae or Freddie Mac.

Option Arms (1% Payment loan)

Option arms or the pick your payment loan can adapt to fit your lifestyle. They offer flexible payment options and qualification standards. Investors like them for there low payments and cash flow potential.

Traditional home loan payments are the same each month for the term of the loan. With an Option ARM, you can choose from one of four payment choices each month -- which gives you the flexibility to change your mortgage payment as your needs change. You are only required to make the minimum payment on the loan each month.
Payment Options
1. Minimum Payment
2. Interest Only Payment
3. Fully Amortized 30 year payment
4. 15 Year Payment

Main Benefits of an Option Arm

To minimize your house payment to pay off other debt.
To control how much tax-deductible interest you pay monthly.
To maximize your buying power.
If your income tends to fluctuate.

How an Option Arm Works

The minimum payment can only increase or decrease by 7.5% per year. There would be an adjustment to your payment is rates have moved up or down. After 5-years an option arm will recasts which ensure your loan will be repaid within the given term or 30 years. This means your new payment would be calculated to pay the loan off in 25 years.
Since the minimum payment is so low you may not be paying off all of the interest each month. This is called deferred interest and will be added to your principal balance. Deferred interest can be tax deductible when you refinance or sell your home.
A lifetime interest rate cap limits how high your interest rate can reach.

One of the most effective Pay Option ARMs available are those that have a true bi-weekly feature. This feature, when holding onto the loan for more than 3 years can dramatically reduce the deferred interest and actually help pay the mortgage down, often faster than a conventional 30 year fixed mortgage, over a 30 year cycle. Thus the borrower gets the best of both worlds, the lowest payments possible with very little interest expenses over the life of the loan.

Pay option ARM programs can allow you to have a lower payment and provide cash flow. This can be a good option for a home investor or someone who expects to have a higher income in the future.

Pros and Cons of Pay Option ARM loans - A Pay Option ARM loan is a very flexible mortgage loan. There are many benefits and drawbacks of these types of mortgage home loans. The main benefit of a pay option arm loan is that this type of mortgage provides you with the most flexiblity for making your monthly payments. You are given, usually, four payment choices each month to choose from. You can lower your monthly expenses significantly if you choose to make the lowest payment option. These types of loans are not right for everyone and you should consult a mortgage professional to see if it may be right for you.

A potential risk associated with Pay Option ARM is possible negative amortization. Negative amortization occurs when over time the loan balance is more than the original loan amount. When a borrower makes minimum payments, which is less than the interest accrued for the month, the interest left unpaid is added to the loan principal. Instead of pay down the principal, the homeowner can end up owing more than what he borrowed. In a real estate market where home values are unchange or even depreciating, negative amortization can be disastrous.

Option ARM's may cause "Negative Amortization" only if the appreciation is less than 3% per annum. If one is able to take the difference between the minimum payment and the full interest payment and put this amount into a tax free investment vehicle then one would be able to payoff one's mortgage that much faster.

Deferral of interest is definitely not for everybody, but for most people the ability to pay less than half of a standard mortgage payment to live in the home they desire is a more than compelling reason to consider payment option loans. Small minimum payments and deferred interest are siginificantly better alternatives to missing large conventional payments and losing one's home in foreclosure.

Should i refinance into a Pay Option ARM - Pay option ARMS are not for every borrower but there are a few borrowers that can benefit from the Pay Option ARM mortgage programs available today.

Self-Employed and Commissioned workers- With the flexible options in the Pay option programs these borrowers can adjust their monthly payments according to their monthly earnings.

Borrowers with high consumer debt– By lowering their mortgage payment these borrowers are able to pay of higher interest debt faster.

If the house you are living in is not your last house or it is a stepping stone towards a bigger purchase down the road then a payment option arm may be a good fit for you. You save additional money each month with flexible payment options and in turn your house takes on the financial burden. So if you plan to sell your place in the next few years the payment option arm should be an option to consider.

Fixed rate pay option ARMS have recently become availible to homeowners that are looking for financial flexibility with a little more security then a standard option ARM.

Avoid Payment Option Arms with high margins and three year pre-payment penalties. On most Option Arms the rate changes monthly according to a specific index and is determined by adding the margin to the index. The higher the margin the higher your rate will be. If the loan contains a pre-payment penalty and you want to refinance to avoid an increasingly higher rate, it will cost you thousands of dollars.

Some Option ARM's specifically have SOFT pre-payment options. This gives you the flexibility of selling your home without paying the pre-payment penalty or refinancing with the same lender to have your pre-payment penalty waived. This gives you the flexibility of the Option ARM without being stuck while the market drastically changes on you.

Before deciding on an Option ARM first determine why you are considering a refinance. Are you refinancing to save money each month? Would you like to get some cash out? Do you live in a rapidly appreciating area?

Taking cash out through an Option ARM mortgage is a great way to separate cash from equity to start a business, make an investment or otherwise improve your quality of life. They are a powerful financial tool in the right hands, and when used responsibly can dramatically improve your lifestyle.

Make sure that you have your mortgage professional clearly lay out the terms of your particular loan program. Pay particular attention to your fully indexed rate and to any pre-payment penalty that is attached to the loan.

Should I refinance into a pay option ARM? This mortgage product provides flexibility by offering various size loan payments. This is good to provide cash flow. The downside is that if you chose the lowest payment you will be deferring the interest on the loan, resulting in a higher loan balance to pay off.

The pay option arm is also a great tool for seasonal workers. If you are a painter, and know that the majority of your income comes from the summer months, then you could adjust your payments to those months. You would be able to pay more on your mortgage while you are making more money, and pay less during the months that are typically slower for you. This would leave more cash in your hands during those slow months.

A Pay Option ARM is also a great tool for property investors. It gives you flexible payments that can help in months when the property is vacant, or in the event repairs are needed it can be used to offset the cost of repairs rather than using cash out of pocket.

The Pay Option ARM is also a great way to pay down credit card debt, without laying out additional cash on a monthly basis. This method of managing your mortgage provides interest savings as well as it will usually provide some sizeable Taxes savings.

Ask your mortgage broker to review your situation and see if you could benefit from the pay option ARM programs. If a pay option ARM is not for you there may be better programs based on your situation.

If your household, like many in the US today, seems never to have enough cash every month and you find yourself constantly turning to credit cards or other expensive debt, this loan may be quite helpful. The Pay Option ARM can free up needed cash every month and help you avoid the other, more expensive kind of debt.

Option Arms are a good choice for:

-Increased cash flow on investment properties
-Areas with high appreciation
-Lower payments in order to invest and payoff debt
-People who have unpredictable incomes.

When considering whether to refinance into a Pay Option ARM, always keep in mind that Pay Option ARM can create negative amortization. Negative amortization occurs when a home owner makes the minimum monthly payments, which are less than the interests incurred, and ends up owing more than what the homeowner owed originally. Most Pay Option ARM programs re-adjust the payments every year so that the loan balance would not be too much more than the original loan amount.

The Pay Option ARM gives you 4 "options" to make your payment.
(1) The minimum payment.
(2) Interest only payment.
(3) 30 year fully amortizing payment.
(4) 15 year fully amortizing payment

Pay Option ARM's are generally not meant to be programs that one stays with for long periods of time, such as 10 years or more. Pay Option ARM's can incur negative amortization which means instead of your mortgage balance going down it actually increases. Most Pay Option ARM's have a cap that will not allow the balance of your loan to increase higher than 115% of the appraised value of your home. Most also have a rate cap that states the rate can't increase any higher than 9.95%. These numbers may vary slightly so check with your mortgage broker on the exact details of your loan program.

Pay Option Arms come in a great number of flavors. One particular flavor is where you get the 4 various options of paying but the interest rate and the payment are fixed for 3, 5, 7 or 10 years. Contact Marty Searing to find out if the program is suitable for you.

Pay Option Arms are also a great tool for those who receive large annual bonuses as part of their compensation. One can budget their expenses each month based on their salary, then make a lump sum payment to principal once a year.

Fixed Rate Pay Option Mortgage - This is a relatively new program available in the realm of Pay Option Mortgages. Traditionally Pay Option Mortgages have a monthly adjustable interest. This new program has a fixed rate for the life of the loan. This means that the only payment to adjust is your minimum payment. This rate will adjust annually. The remaining payments: Interest Only, 30 year and 15 year, will not adjust monthly based on interest rate changes.

Consumers who receive significant annual bonus income are excellent candidates for a fixed rate pay option arm.

This program strikes an excellent balance between the need for a low minimum payment option and the desire to have the stability of a fixed rate.

As with most Pay Option ARM's, the Fixed Rate Pay Option ARM also has a maximum loan balance limit. Depending on the bank and their loan programs, the limit is often set at 110% to 115% of the original loan amount. When a homeowner makes only the minimum payment every month, which is less than the interests owed for the month, the difference between interest owed and the minimum payment is added to the loan balance. When the amount owed reaches 110% to 115% of the amount originally borrowed, the payments would be re-calculated based on the higher loan balance, or loan is said to "recast".

It has been touted for its many consumer-benefits. As many people today purchase homes with the intent to move, sell or refinance within the first few years, the ability to offer payment flexibility is increasingly attractive to borrowers.

By combining some of the best features of Option ARM Adjustable Rate Mortgages with the security and stability of a fixed rate for the life of the loan, 30 year fixed rate pay option mortgages allow you to boost cash flow and defer interest without worrying about the huge increases in your underlying interest rate which are common with other loan programs offering similar payment options.

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