The Option Arm Nightmare

Business week has an article entitled “How Toxic is Your Mortgage” which condemns the Option Arm loan program. The article explores the history of the option arm and the risk associated with a negative amortized loan.

For cash-strapped homeowners, it was a pitch they couldn’t refuse: Refinance your mortgage at a bargain rate and cut your payments in half. New home buyers, stretching to afford something in a super-heated market, didn’t even need to produce documentation, much less a downpayment.

Those who took the bait are in for a nasty surprise. While many Americans have started to worry about falling home prices, borrowers who jumped into so-called option ARM loans have another, more urgent problem: payments that are about to skyrocket.

Consider the following questions when evaluating this loan product:

• Do you understand the start or introductory rate?
• Do you understand the margin?
• Do you understand the index?
• Do you understand the effective rate?
• Do you understand the four payment options?
• Do you understand the minimum payment?
• Do you understand negative amortization?
• Do you understand the recast payment?

If you can answer all these questions, then maybe, just maybe, this loan is right for you!

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Tagged with: denver • mortgage • negative amortization • rate • refinance • va

Filed under: mortgage

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