Ask Mike! »  Option ARM

Q: What are Option ARM mortgages?

A: Flexible payment ARM mortgages have many names, but they all refer to an Adjustable Rate Mortgage than offers a borrower up to four different payment options each month.

You can make a minimum payment, an interest only payment or a principal and interest payment for either a 30 or 15-year-loan. Please pay close attention to the terms for the rate adjustment. The payment shock of rate increases may be sudden and sharp.

Another caution is the possibility of negative amortization (when your loan balance increases) if you make only the minimum payment.