ARM stands for Adjustable Rate Mortgage. Many brokers suggest the option ARM mortgage knowing clients don’t fully understand what they’re getting themselves into. Often the mortgage interest rate is set at 1% FOR ONLY ONE MONTH, and then jumps to the fully-indexed interest rate (Index value + margin = interest rate). The typical mortgage broker will use an option ARM mortgage simply to make as much money as possible from the lender, without any regard for your financial future. Many borrowers don’t realize the details of their new loan. They’ll most likely be stuck with it for 3-5 years or forced to pay a large pre-payment penalty if they refinance or EVEN IF THEY SELL THE HOME. Cons = reasons why you should not consider an option arm / pick a payment loan. - You plan to stay in your house forever. If this is your final home and you want to pay it off. - You are not responsible about your debt. If you are just going to accumulate more debt because of your low monthly payment this loan is not for you Pros= Your current loan payment is too high. If you took on more payment than you can handle, this type of loan can remedy the situation until you are in a better position financially. - This is a rental property. This type of loan can transfer more cash flow into your pocket by lowering your monthly payment option. - You want to purchase a rental property. If you have plenty of equity you can use this type of loan to purchase an investment property or two. - You have plenty of equity. Plenty of equity will assure you never have to worry about negative amortization. - You want the option to make the minimum payment. You can make the fully amortized payment with no problem but want the option of making the minimum payment when the need arises - You are not afraid of a little negative amortization. - You need more cash flow certain times of the year. If your income varies during the year this can be a good option since you can make the minimum or interest only payment when income is lower and the full payment when income is higher.