More on Option ARMS - mortgagesfirst.com

Option ARM Mortgages
An issue for many homeowners is managing monthly income and expenses, or "cash flow".   Income varies monthly for many reasons and unplanned expenses come up when least expected. For many, our mortgage payment is our largest monthly expense, and the least flexible. The Option ARM was designed to give you greater control over your mortgage payment. You can choose one of four payment options each month based on your cash flow needs.
        Minimum Payment    A payment that is set for 12 or 60 months at a reduced rate. The minimum payment rate for the 12 month option is currently 1.00% and the 60 month option is 1.90%. This option maximizes cash flow and may also defer payment of interest allowing greater flexibility in managing your tax deductions. This minimum payment can not increase by more than 7.5% each year. Read about the important tax considerations of a cash flow arm. If you have concerns over deferred interest, read about the small amount of appreciation required to offset it.
        Interest Only Payment    Defer paying principal and improve cash flow. This option is not available if the interest only payment would be less than the minimum payment.
        Fully Amortizing Payment Options    You can make a principal and interest payment based on either a 30 year or 15 year payment schedule.
The Cash Flow Arm series allows you to choose your index from the 1 month LIBOR (London Interbank Offered Rate) or the MTA (12 Month Treasury Average).
Additional Options    If you want the additional security of a fixed payment while still taking advantage of the low payment rates, there is a 5 year fixed payment option. You have a fixed minimum payment for five years. You still have four payment options to select from to manage your cash flow. You also have the ability to increase the term of your loan from 30 to 40 years lowering your payment even further. LTVs on Cash Flow Arms are now available up to 100%!
The Minimum Payment Advantage    The example below is based on a $400,000 mortgage. It compares a traditional 30 year fixed rate payment based on the above 10 year average to the minimum payment available on the Cash Flow ARM again based on the 10 year average. Assumes that the Minimum Payment increases by the maximum 7.5% per year.

30 Fixed Cash Flow Minimum Mo.Savings Ann.Savings

Yr 1 $2,855 $1,287 $1,586 $18,816
Yr 2 $2,855 $1,384 $1,471 $17,652

Yr 3 $2,855 $1,488 $1,367 $16,404

Savings over 3 years $52,872
Savings invested at 8% $56,885
Try our Option ARM payment calculator

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