| Option adjustable rate mortgages (ARMs) were | | | | according to UBS AG. |
| created in 1981 and for years were marketed to | | | | One of the least known facts about option ARMs is |
| well-heeled home buyers who wanted the option of | | | | that getting a second mortgage behind these neg am |
| making low payments most months and then paying | | | | loans can be extremely difficult. A negative |
| off a big chunk all at once. For them, option ARMs | | | | amortization loan places a second mortgage lender in |
| offered flexibility. However, as housing prices | | | | a more precarious position than when loaning behind |
| skyrocketed, option ARMs became the only way | | | | any other type of loan. Thus, a neg am can hold you |
| people could afford to buy a house due to the very | | | | hostage because very few lenders will go behind a |
| low initial mortgage payments and low qualifying rates. | | | | negative amortization 1st. Lending underwriters |
| The option ARM home loan is also known by several | | | | calculate the1st mortgage balance by gross up |
| names like pick-a-pay loan, pay option ARM, payment | | | | balance 115% or 125% depending upon the mortgage |
| option mortgage and deferred interest loan because it | | | | note, so you should consider whether you may need a |
| offers several payment choices--a negative | | | | second mortgage before you get a payment option |
| amortization minimum payment option, an interest-only | | | | mortgage with a 1% start rate. |
| option and two fully-amortized payment options, one | | | | How can you get out of an option ARM (neg am) loan |
| being based on a 30-year loan and other a 15-year | | | | so you can get a second mortgage? Depending upon |
| payment option. What most people don't know is that | | | | the credit score you may need to refinance your |
| it is also known as a negative amortization (neg-am) | | | | negative amortization 1st and then get a new home |
| loan. | | | | equity loan (second mortgage) so you can refinance |
| The problem is that most home owners who financed | | | | debt and maybe even get a cash-out second |
| their purchase loan or mortgage refinance with option | | | | mortgage for home improvement, investing in a |
| ARMs choose to make the minimum payment option. | | | | second home or taking care of other expenses. If you |
| Roughly 75% of borrowers with option ARMs are | | | | choose to refinance, you should start exploring your |
| currently electing to make the minimum payment, | | | | options about six months before your loan changes. |