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Beware Option Adjustable Rate Mortgage Loans

If you are a homeowner that financed your home using an Option Adjustable Rate mortgage pay attention. You may not know that this relatively new type of mortgage is considered the most dangerous loan on the market. The option mortgage was intended for real estate investors; however, it was marketed for homeowners as a way to buy more home than you could normally qualify for.

An Option Adjustable Rate Mortgage loan is a mortgage with an adjustable interest rate and four different options for repayment. You have the choice of paying the mortgage back like a traditional 30 year mortgage, a 15 year mortgage, an interest only mortgage, and a minimum payment option. The minimum payment choice does not pay enough each month to cover the interest due on the mortgage. While this low payment amount may seem like an attractive choice, the interest you are not paying is tacked on the principal loan balance. Growing mortgage principal is a phenomenon called “negative amortization.” This means you owe more for the property than you should have paid for it with traditional financing.

If you are a homeowner making the minimum payments on an Option Adjustable Rate Mortgage you are at the helm of a sinking ship. Get out now! Interest rate hikes along with the fact that your principal balance will come due one day spell financial disaster for any homeowner in this predicament. You need to refinance this loan immediately to a traditional fixed rate mortgage before you get in over your head. To learn more about refinancing your mortgage and how to save money doing so, sign up for our free guide to mortgages and mortgage refinancing. The guide is free and there is no obligation on your part. Get “Five Things You Need to Know Before Refinancing Your Mortgage.”

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