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Pay Option Arms, opinions

Mortgage and Lending with Mortgage officer

With my posting of the Line of Credit, and the subsequent responses, what is the feeling out there about Pay Option Arms: Offered still by a few lenders.

4 payment options:

1st choice is the low 1 or 2%

(everytime you use this option, you are not paying the full bill so you owe more money towards the principal).

2nd choice is interest only

(everytime you use this option, you are not paying anything down towards the principal but also not incurring more debt).

3rd choice is a 30 year amortization.

4th choice is a 15 year amortization.


Chuck Christensen
Your Financial Coach - Bellingham, WA
I like using the language...fixed for fixed, and adjustables for adjustable...meaning if you have a fixed income you should have a fixed rate. If you are self employed and may need extra cash flow at times or are a seasonable employee, then the option ARM may be really good for you. When you need to free up extra cash, you can. When you make an extra commission or bonus, pay a little more. But clients need to be educated and understand the possabilities of a negative amortization. Also their should be more education about equity and liquidity. What has the average increases in equity been over the last 10 years and what will make that trend continue. How long does one plan to live in the home. How many like homes get put on the market and what is the chance of selling it quickly in a down market if you don't have enough equity built up to pay the Realtors commission? What does one need for taxes or right offs...do they have a home based business and are able to write off an office? many more to list...any more suggestions are always appreciated.
Oct 26, 2007 07:01 AM
Douglas Bailey
Mortgage officer - Brandon, FL


Thanks for the input, you brought up alot of great points. The Pay Option is definitely a product where you want to "know your client" there are alot of variables when considering the product. I agree it is more appropriate for commissioned folks who have non traditional income. I think we need to be conservative when working with our clients.

Oct 26, 2007 07:23 AM