Can a Borrower Get a No Points Pay Option Arm Loan?

Some lenders charge points to the borrower for an Option Arm Loan.

Agoura Hills, CA (PRWEB) May 31, 2006 -- Some lenders charge points to the borrower for an Option Arm Loan. The fact is, if a person was willing to keep their loan, for say 2 or 3 years (with a prepayment penalty attached), the broker will make enough commission with no need to charge points up front to do the loan. As long as this is discussed and explained, the borrower and loan consultant should be able to come to a mutual agreement on the overall structure of the loan.

So the answer is yes, a borrower can get a no points Pay Option Arm Loan.

The minimum payment option can help keep the monthly payments affordable. If the minimum monthly payment is not sufficient to pay the monthly interest due, deferred interest can always be avoided by choosing the interest-only payment option.

With the Option ARM, a borrower generally has at least two fully amortized payment choices, leading to a quicker loan payoff. If the preference would be to pay off the loan on schedule, the fully amortized payment can be made, based on a 30-year loan, or one could choose the 15-year payment option for the fastest equity build-up.

In most cases, a borrower can also make additional principal payments without a penalty which reduces the amount needed to pay in later months.

Option ARM loan programs are right for individuals who would like to own a property only for a short time, and prefer affordability and flexibility in the monthly payment. However, if one selects the minimum payment option in the early years, refinancing before the loan recasts (usually 4-5 years) would seem to be a great idea to consider.

Option ARM loans have four major types of payment options:

Minimum Payment

With the minimum payment option, the monthly payment is set for 12 months at the initial interest rate. After that, the payment changes annually, and a payment cap limits how much it can increase or decrease each year.

If one makes the minimum payment after the end of the initial interest rate period, which holds only for the first month, it may not be enough to pay all of the interest charged on the loan for the previous month and the unpaid interest will be added to the principal balance owed (will be deferred).

Interest-Only Payment

With the interest-only payment option, one can avoid deferred interest, when the minimum payment is not enough to pay the monthly interest due. The interest-only payment option, however, is not available if the interest-only payment would be less than the minimum payment. Please note, that this payment option does not result in principal reduction.

The interest-only payment may change every month based on changes in the ARM index used to determine the fully indexed rate.

Fully Amortizing 30-Year Payment

With fully amortizing payments, a borrower pays both principal and interest and keeps the loan on schedule. The payment is calculated each month based on the prior month's fully indexed rate, loan balance and remaining loan term.

Fully Amortizing 15-Year Payment

If one prefers to put a loan on an accelerated schedule and can afford higher monthly payments, the 15-year payment option allows you to repay your loan twice as faster and save more than half the total interest costs of a 30-year loan.

Please note, that this payment option is offered only on the 30-year (or 40-year) term. It will cease to be an option when the loan has been paid to its 16th year.

These options should be clearly marked on a loan statement, so it is very easy to figure out how much one should pay each month. Just enter the correct amount in the payment coupon section of the loan statement.

Option ARM loan programs are becoming more and more popular today, and there are many variations of this innovative home financing product on the market: Pay Option ARM, Pick-A-Payment Loan, 1 Month Option ARM, CashFlow Option Loan, LIBOR (or 12-MAT) Pay Option Loan, etc. If a borrower were thinking about applying for an option ARM, it is important to shop carefully and investigate several loan products, to find the one best fit.

Borrowers can access an audio explanation of this type of loan at http://www.NewFiveYearPlan.com

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