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

A Pay Option ARM is an adjustable rate mortgage that gives the borrower the option of selecting how much to pay each month based on different loan options. The borrower can choose any one of the different options included in their loan program.

Pay Option Adjustable Rate Mortgages are being offered by more and more banks. It is designed for home owners whose incomes are commission based, which can vary from month to month, and for those who have seasonal jobs, such as fishermen and vacation resorts, whose annual incomes are usually earned in 6 months.

Pay Option ARMS have been around for many years but until the past four or five years have been primarily used by investors. The rising cost of homes and the lack of cash flow in the average American household have made these loans very popular with owner occupied homes recently.

The different options available for payments each month are a minimum payment, an interest only payment, a 30 year amortized payment and a 15 year amortized payment

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.

An ARM loan is where the interest rate is fixed for a specified period of time and then adjusts according to the terms of the loan and the index associated with the loan.

Adjustable Rate Mortgages are excellent choices for our customers with growing families, as the often outgrow their houses much before the fixed period of the mortgage expires.

One of the biggest advantages of an ARM loan is that when interest rates fall, the borrower can take advantage of those lower rates without having to go to the expense of refinancing.

An arm loan typically starts out w/ a lower rate than a fixed rate loan and can give you several years of reduced payments compared to a higher fixed rate mortgage.

The most common ARMs are 6 month, 1 yr, 2 yr, 3 yr, 5 yr, 7 yr and 10 yr.

ARM loans offer way more flexibility than your standard fixed rate mortgage. With ARM loans you can do fixed terms of usually 1, 3, 5,7 or 10 years. Most of these programs also give you an interest only option to lower your payments even more. Even though it has some negative aspects, the Pay Option ARM ( aka Pick a Payment, Cash flow ARM, Neg Am) is my favorite loan. This ARM gives you 3 or 4 monthly payment choices. The interest rate does fluctuate every month, but the minimum payment adjusts once a year and is usually based on paying only 1% of the interest due. This is ideal for investment properties, first time homebuyers, or borrowers savvy enough to divert the savings into other investments. Make sure to discuss all of the options with your mortgage broker.

ARM loans are typically best for people who know that they will either refinance or move within a few years. Because rates tend to be lower on ARM loans, this can be a very good choice. However, if you have no intention of moving within the next few years, you may be better off to go with a fixed rate mortgage. This is something you will want to discuss with your broker.

One of the myths in the mortgage business is that ARM loans are for those who don’t qualify for a fixed rate mortgage. The fact of the matter is that most ARM borrowers could also qualify for a fixed rate loan but choose an ARM because of the lower payments and other advantages that the ARM product offers.

When considering the length (or term) for your mortgage will depend on many key factors. Considerations need to be made on your current financial situation and your goals for the future. You will need to consider how much you can afford to spend each month while still maintaining a acceptable amount of cash reserve in the event of an emergency is very important.

There are many options available for you to choose concerning the length of your mortgage. Options beside the typical 15 and 30 year terms are: 10, 20, 25 and 40 year fixed rate loans. Hybrid Arms offer your fixed and interest only terms in 3, 5, 7 and 10 year terms. A mortgage or loan consultant can help guide you through which loan term is right for you.

You should always consider your short and long term financial goals when considering the length of your mortgage note. You should weigh the benefits of the longer term mortgages in regards to monthly cost saving, compared to the shorter termed loans which will save you thousands of dollars in interest payments over the life of the loan. Always remember there are ways to pay your mortgage off earlier than the note term, which can also save you thousands as well.

Generally, you will use a longer-term mortgage to lower your monthly payments to a manageable level, and a shorter-term mortgage to save money over the long term and pay off your home quicker. Many people think that if you go from a 30 year fixed mortgage to a 15 year fixed, your payments will double. This is not the case. 15 year loans generally come with a smaller interest rate, which saves you some money. But it’s also important to know that most of your monthly payment is interest. A relatively small amount is paid toward your principle balance. For that reason, it doesn’t take a large increase in your principle payment to pay off the mortgage quicker.

If you can afford a higher payment get a shorter term mortgage, this will save you tens of thousands of dollars in interest charges!

If you just aren’t sure how long your mortgage should be, keep in mind that you can always pay more than the monthly payment, but you can never pay less. It may be wise to go with a longer-term mortgage to lower your monthly payment, and if you want you can pay extra to pay off the loan faster.

Its important to know that if you choose an adjustable rate mortgage, that it will still be amortized as if it were a 30 year fixed. Many consumers get this confused when they are shopping for a new loan. The 3,5,and 7 year ARMs offer lower interest rates and are a good way to keep your payments low.

An explanation of when to get qualified for a mortgage:

Should I get qualified for a mortgage before looking for a new house or find a house I like and then get qualified? You should absolutely get pre-qualified for a home loan before house hunting. By getting qualified first this will allow you to know how much house you can afford and how much of a mortgage you can qualify for. Also, most realtor’s will want to see a pre-approval before they start showing you houses, and the listing realtor will definitely want to see a pre-approval before accepting a bid on a house.

There is usually no commitment on your part to get -qualified. In most cases, you don’t even need to provide personal income documents. Of course, the more documents you furnish to your mortgage broker, the better and more accurate your pre-qualification will be. If you provide your mortgage broker with income and assets documentations, he/she can get you pre-approved from a bank, which is basically a loan approval, pending the information of the home and the appraisal.

Definitely begin the process as early as possible with your mortgage broker. This will give you a nice clear picture of what you can afford and what the process will be once you find your dream home. The sooner you begin with your mortgage broker, the sooner you can move through the loan process once you find your home!

Giving yourself time needed to save up for a down payment, improving your scores, and moving balances on accounts is imperative to a successful home loan transaction.

It’s actually not a bad idea to start looking into being qualified as much as three months before you plan on purchasing a home. That way, if there are any credit issues that you were not aware of, there is a good chance you will have time to address them before the purchase.

If you have an Adjustable Rate Mortgage(ARM) Loan, and the fixed period is will be expiring soon. You should look into becoming qualified for a new mortgage loan at about three months prior to the fixed period’s expiration.

It is a great idea to get pre-approved before you start to look for a new home so you know how much you have to finance. With today’s many 100% purchase programs a down payment is becoming a thing of the past for many people. But with no down payment the amount you can afford to finance will go down.

Loans with an adjustable rate feature are tied to an index. Each index has advantages and disadvantages. You will want to research each of these indexes to see the historical movements.

Most home equity lines of credit use the Prime index. Some adjustable rate mortgages use the Prime index also. Other indexes that are used for adjustable rate mortgages are Cosi, Cofi, MTA, LIBOR and CODI. Your mortgage broker can assist in finding which index is best for you.