I’ve been getting questions from buyers about Option ARMs (Adjustable Rate Mortgages). I recently wrote an article on how adjustable rate loans have been the source of foreclosures in Dallas, San Antonio, and Austin. With our state having high property taxes compared to the rest of the nation, buyers need to be careful when purchasing using ARMs. Once they start adjusting, the peaceful ride is over and you’re on an ascending roller coaster.

According to Bankrate.com: 

An option ARM is an adjustable-rate mortgage that gives the borrower four choices of a payment each month. The borrower can pay the amount necessary to pay the loan off in 15 years or in 30 years. The borrower can pay only the interest charged in the previous month. Or the borrower can make a minimum payment that doesn’t even cover the interest, so that the loan balance increases.

Most option ARMs have absurdly low introductory rates,
sometimes below 2 percent, that last just a month. Then they rise. And
rise. The rate changes each month, but the minimum required monthly
payment changes only once a year.

The main problem with Option ARMs is that buyers think it sounds great, but don’t properly compare loans. Although they sound like a great way to get into a home, they may be the reason why you’re in foreclosure within the next few years. Before you or someone you know gets an Option ARM, read the Bankrate article on the topic.

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This entry was posted on Friday, September 22nd, 2006 at 6:45 am and is filed under Gotcha Guide Advice and Tips, Mortgage and Financial News. You can leave a response, or trackback from your own site.