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Should i refinance into a Pay Option ARM

Filed Under mortgage 

Editors Note: Due to the mortgage and credit crunch, option arm loans are more difficult to get. If you’re in need of a Denver home loans/mortgages contact us to discuss your mortgage options.

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

When considering whether to refinance into a Pay Option ARM, always keep in mind that Pay Option ARM can create amortization »”>negative amortization. Negative amortization occurs when a home owner makes the minimum monthly payments, which is less than the interest incurred, and end 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.

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.

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.

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.

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

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.

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.

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 Tax savings.

Is your rate too high? Get a rate quote on a Denver Mortgage Loan now!

Comments

One Response to “Should i refinance into a Pay Option ARM”

  1. Mutual Funds and Market Research on December 8th, 2007 9:20 am

    Mutual Funds and Market Research…

    I couldn’t understand some parts of this article, but it sounds interesting…

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