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Loan Types
Option ARM
The Option ARM was designed to give you greater control over your mortgage payment. You have the option of choosing one of four payment options each month based on your specific cash flow needs at the time. It's your choice every month. Every month, you can choose from up to four payment options to make:
- Minimum Payment - The smallest payment to let you keep the most cash now.
- Interest-only Payment - Keep payments manageable while paying all your interest.
- Fully-amortized Payment - Reduce your principal and pay off your loan on schedule.
- 15-Year Payment - Own your home twice as fast.
With an Option ARM, you're better prepared to handle whatever comes up in life. And you enjoy these additional benefits:
- A low minimum payment that adjusts annually
- 7.5% payment cap that limits payment increases
- A lifetime interest rate cap which protects you financially - there's a limit to how high your interest rate can go
- Terms up to 40 years available to help minimize your payment
You should consider an Option ARM if:
- You have consumer debt (credit card debt, auto loans, etc)
- You're self-employed or work on commission
- You like to invest your spare cash
- You want to manage your tax write-off
With four options, you have more flexibility than with almost any other loan.
Option 1: Keep payments manageable
The minimum monthly payment, Option 1 gives you more cash now and keeps your monthly payments manageable. Generally, this payment amount changes annually and is calculated using the initial interest rate for the first 12 months. The minimum monthly payment is usually recalculated annually thereafter, based on the outstanding principal balance, remaining loan term and prevailing interest rate. Your loan consultant will provide you with complete details for your specific loan.
The Option ARM's 7.5% payment cap limits how much the Option 1 payment can increase or decrease each year, except for every fifth year (beginning in the 10th year on certain programs), when the cap does not apply.*
At times, the payment amount change allowed by the cap may not be enough to fully amortize the loan. Then a portion of the interest will be deferred, and added to the balance of your loan.
*In the event your balance exceeds your original loan amount by 125% (110% in N.Y.), the payment amount may change more frequently without regard to the payment cap.
Option 2: Pay all the interest
At those times when the minimum monthly payment is not sufficient to pay the monthly interest due, you can avoid deferred interest by paying the minimum monthly payment plus any additional interest accrued during the month (same as interest-only payment). Your payments remain manageable, with no change in your principal balance for that month.
Option 3: Pays principal too
This is the fully amortized payment. It is calculated each month based on the prior month's interest rate, loan balance and remaining loan term. When you choose this option, you pay all the interest due and reduce your principal to pay off your loan on schedule.
Option 4: Build quick equity
For faster equity build-up, quicker payoff and substantial interest savings, choose the largest monthly payment option. Option 4 is calculated to amortize your loan based on a 15-year term from the first payment due date.
Fixed Rate Mortgage
A fixed rate mortgage offers a permanent interest rate and monthly payment amount. The interest rate and monthly payments on a fixed rate loan are usually higher than the initial rate and payments on adjustable or balloon mortgages. The basic tradeoff is risk vs. initial rate.
Adjustable Rate Mortgage
An adjustable rate mortgage (commonly called an "ARM") offers a fixed initial interest rate and monthly payment but then both adjust on a regular basis to reflect changes in the market interest rate. With an ARM, you get a low initial interest rate and payment in exchange for taking the risk that rates may rise in the future.
Balloon Mortgage
A balloon mortgage has a fixed interest rate and monthly payment, but after the first 5 or 7 years, the balance of the loan becomes due. As you can imagine, this is risky. If you don’t have the money to pay back the loan after those 5 or 7 years and you can’t get another mortgage, you are stuck. Balloon mortgages are really a last resort for those who can’t qualify for a standard fixed or adjustable rate mortgage.