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Negative Amortization Loans

These loans offer more payment options and the option to pay MUCH less when you need to.

Option ARMs
This loan program is an adjustable rate mortgage with added flexibility of making one of several possible payments on your mortgage every month, in order to better manage your monthly cash flow.

It's low introductory start rate allows you to make very low initial mortgage payments and low qualifying rates enable you to qualify for more home.

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

With the Option ARM, you generally have at least two fully amortized payment choices, leading to a quicker loan payoff. If you prefer to pay off your loan on schedule, you can make the fully amortized payment based on a 30-year loan, or you can choose a 15-year payment option to build equity faster.

In most cases, you can also make additional principal payments which reduce the amount you need to pay in later months.

Option ARM loan programs are right for you if you'd like to own your property only for a short time, and prefer affordability and flexibility in your monthly payment. However, if you select the minimum payment option in the early years, you should be prepared for a possible sudden increase (often referred to as payment shock) in your monthly payments thereafter.

Option ARM loans have four major types of payment options:

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

    If you make the minimum payment after the end of your initial interest rate period, which usually holds only for the first 1 to 3 months, it may not be enough to pay all of the interest charged on your loan for the previous month and the unpaid interest will be added to the principal balance you owe will be deferred.
  • Interest-Only Payment
    With the interest-only payment option, you 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 your principal reduction.

    The interest-only payment may change every month based on changes in the ARM index used to determine your fully indexed rate.
  • Fully Amortizing 30-Year Payment
    With fully amortizing payments, you pay both principal and interest and keep your loan on schedule. Your 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 you prefer to put your 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 your loan statement, so it is very easy to figure out how much you should pay each month. Just enter the correct amount in the payment coupon section of your 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: PayOption ARM, CashFlow Option Loan, 1-Month Option ARM, Flex 5 Home Loan, Pick-a-Paymentsm Loan, 12 MAT ARM, Option Power ARM, FlexPay® 12 MAT, FlexPay® 3/1 LIBOR ARM, OptPAY ARM, etc.

For more information on Option ARMs, Click Here or Give Us a Call Today at: 520-360-7360

Hybrid Option ARMs
More information coming soon. Please contact us for more information!

Graduated Payment Mortgages (GPMs)
Graduated payment mortgages have payments that start low and gradually increase at predetermined times. A lower initial payments allow you to qualify for a larger loan amount. The monthly payments will eventually be higher in order to catch up from the lower payments. In fact, your loan will be negatively amortizing during the early years of the loan, then pay off the principal at an accelerated pace through the later years.

Lenders offer different GPM payment plans, which vary in the rate of payment increases and the number of years over which the payments will increase. The greater the rate of increase or the longer the period of increase, the lower the mortgage payments in the early years.


The following table compares the monthly payment schedule of a 30 year fixed rate loan with the most frequently used GPM plan. In this plan payments increase 7.5 percent each year for 5 years before leveling off.

The example uses a mortgage with a loan amount of $60,000 and an interest rate of 10 percent.

Year 30 year fixed GPM loan
1 526.80 400.22
2 526.80 430.24
3 526.80 462.50
4 526.80 497.20
5 526.80 534.49
6 526.80 574.57
7 - 30 526.80 574.57
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