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Four Ways to Pay Option ARM Loans


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TERMINOLOGY

You may pay option ARM loans through a variety of payment plans, depending on which best suits your financial situation. Individuals who intend to live in a home for only a short period or whose income fluctuates seasonally are good candidates for option ARM mortgage loans.

Minimum Payments

The minimum payment is equivalent to the amount of interest your mortgage loan accrues monthly. The minimum payment is set according to a low introductory interest rate that usually lasts for no longer than 12 months. After this time, the interest rate adjusts, and payments will increase.

Interest-Only Payments

You can make interest-only payments on your option ARM loan after the introductory interest rate expires. Although these payments are lower than the payments would be on a standard, fixed-rate 30-year mortgage loan, they do not help you build any equity in the property.

Standard Payments

If you choose to make standard payments, you must pay the interest that accrues on the loan and a portion of the principal each month. Your lender determines the amount of each that you must pay in order to keep your loan on schedule to be paid off within the loan period--usually 30 years.

Advanced Payments

With advanced payments, you pay a greater portion of the interest and principal than you would pay should you opt for minimum, interest-only or standard payments. This payment option allows you to build equity more quickly and pay off the entire mortgage loan in half the time--usually 15 years.