Option arm - sustany/dvg GitHub Wiki

An option ARM (adjustable-rate mortgage) is one type mortgage where the borrower has several possible payment choices. The borrower may pay:

• A payment covering the interest and principal amounts, which will reduce the amount owed on the mortgage.
  • This may be made as a 15-year or 30-year term payment.
• A payment that covers only interest (interest-only). This will not reduce principal.
• A minimum or limited payment. This does not cover the interest-only amount, and thus the interest you do not pay is added to the loan�s principal balance or total amount on the mortgage.

When the minimum payment is made, the borrower incurs negative amortization, and the borrower�s principal balance rises. This type of loan made as a subprime mortgage was more popular prior to the subprime mortgage crisis of 2007-08.