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Option ARM Loan Pros and Cons


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TERMINOLOGY

An option ARM loan is a type of adjustable rate mortgage that allows buyers a flexible repayment period. This type of mortgage has exploded in recent years and millions of people now have them. This type of loan has some advantages and disadvantages. Here are the pros and cons of option ARM loans.

Pros

  • Affordable payments - An option ARM loan will help lower your monthly payments initially and make them affordable.
  • Flexibility - You can choose to reduce or increase your monthly payment schedules, depending on your personal financial circumstances.

Cons

  • Negative equity - Only paying interest will result in a higher loan balance to pay off in the end because the negative amount is added to your loan balance.
  • Growing payments - Because the rates are adjustable, your monthly payment could increase drastically over the years.