Getting Out of Option ARMs

BusinessWeek’s recent cover story that dubbed option ARMs the “nightmare mortgages” will only be adding fuel to the fire for millions of Americans who are currently struggling to understand how the option ARM scheme works. The low introductory mortgage rates, which can be as low as 2.0%, was the deal clincher, but their rate now seems to be steadily heading northwards.

Although the monthly repayment amount on option ARMs only changes once a year, the interest chargeable on the option ARM changes monthly. The net result of this has been the rather bizarre situation where millions of American homeowners with option ARMs are now facing the very real prospect of having a larger outstanding mortgage account at the end of the month than they did at the start. Not a particularly welcome sight just as interest rates look like they’ll be going higher over the long summer holidays and starting into the fall and winter gloom.

As a general rule, Primacy Mortgage only recommends option ARMs to very sophisticated clients who grasp exactly what they are getting into. In the majority of cases, these types of loans only make sense for borrowers who have seasonal or variable income on a month to month basis and need the ability to short pay now and again. If you make only the minimum payment on a regular basis and are not saving the difference in some kind of semi-liquid investment, then you are setting yourself up for serious problems down the road.