The option arm mortgage loan has gotten a lot of bad publicity lately, and it's about time. The option arm became popular about 6 years ago and many people are in a mortgage that they did not understand. If your thinking about getting into an option arm do not count on a loan officer to give you all of the details to make an informed decision. Most of the people that are currently in an option arm mortgage would not have chosen it had they known all of the details. Why have so many people gotten into a mortgage they would not want? It's because the mortgage company. lenders and brokers alike, have promoted this program as if it were the best thing since sliced bread.

So why are mortgage companies promoting a bad mortgage product? The answer is that it's really not a bad mortgage product for the right person which equates to less than 1% of the american public. It is a bad mortgage product for the other 99.6% of us. The option arm has been pushed onto everyone including those that would be in a worse financial position by taking it. This started a few years back with the mortgage industry saw something that they could promote on television, radio and the internet to lure the masses to inquire. That bait is the low payment option that this mortgage offers. This is the only benefit of this loan. Many lenders and brokers would tell you all about the low payments but fail to disclose the negatives. There are many draw backs such as the fact that most option arms adjust monthly (all of them until recently). Most people currently in an option arm are paying 8% or more just for the privilege to make reduced mortgage payments. There is negative amortization in which the interest you do not pay gets tacked on to your mortgage balance every month. Unless you need the flexibility of a very low payment and are willing to pay a premium in the rate, it wont benefit you.

Mortgage companies would not only use the low payments promote this option arm, they would use other false and misleading statements as follows. Many loan officers would advise their borrowers to use the savings from the mortgage payment and invest in something else and get a better return on the money. If you are told this, run. This is bad financial advice because if your paying 8% interest on your entire mortgage balance, it does not matter if you get a 100% return on the few hundred dollars that you save per month. Many loan officers told people that the 1% rate is fixed for 5 years. This is a false statement for the one month option arm. You will not get a fixed rate mortgage for 5 years for less than 5% annual interest. If it sounds to good to be true, it probably is. Unfortunately, the mortgage industry has taken advantage of the fact that most people trust the loan officer they working with. This holds true to almost every mortgage company that offers the option arm, including the big well known mortgage lenders that I wont name here. Loan officers that work for a lender or a broker all have the same motive and that is to sell you a mortgage loan. They all have production requirements so they want to sell more loans. Most people think that it's extra money that the loan officer makes when promoting this loan and while this is true to some degree, it's really because it is easier to sell. They sell low payments and no negatives. So if you are looking for an option arm make sure you ask for the disclosures up front. Do not pay for anything or continue with the loan process until you know exactly how often your interest rate will adjust and by how much. You need to get this in writing and I can not stress that enough, before you get the closing papers. If you do choose and option arm I would suggest the new 5 year fixed rate option arm that has a lower interest rate.

For those of you that currently have an option arm, you have a couple of good options right now. If you have monthly income that is pretty stable on a monthly basis, you should look at a standard mortgage product that does not have negative amortisation to get the lowest interest rates. If you have income that does fluctuate, you should look at 5 year fixed rate option arm that has an interest rate of about 6 to 6.50% as of the date of this article. This is about 2% less than the monthly adjustable option arm that your probably in right now. You may want to convert to this type of option arm if you want to have the same low payments that you have now.

This option arm is good for those that have income that fluctuates monthly. It allows you the benefit of low monthly payments when you have less income that month. You should then pay more when you have high income months to offset the negative amortization. As long as your understand that you are paying a higher interest rate and how often that fluctuates, you can now determine if that is worth the flexibility of low payments that this product offers. If you are self employed, on commission, have income that may be unpredictable in the future, it may very well be worth it. As with any mortgage loan, you will want to compare option arm quotes first.