Option ARM

An option adjustable-rate mortgage (option ARM) is a form of ARM mortgage in which the borrower has numerous payment alternatives to the lender. In addition to the option of paying interest and principal payments comparable to those produced in traditional mortgages, option ARMs allow the mortgagor to make much lesser payments by making interest-only payments or minimum payments. A flexible payment ARM is another name for an option ARM. Because many option ARMs provide a low teaser rate, many homeowners unintentionally refinance their existing mortgage in the expectation of making cheaper payments. Unfortunately, after these short-term teaser rates expire, the interest rates revert to those seen in traditional mortgages.