As the prices of Arizona homes continue to rise the ability for the
average person to afford one of these Arizona
homes becomes smaller. Arizona real
estate has become today’s hot investment, and that means that
prices will continue to rise. While the prices of Arizona real estate
continue to rise the salary of the average person remains the same;
to combat this Arizona lenders have begun to include many new choices
and options in Arizona mortgages to help individuals who may have trouble
buying a home.
An option ARM is one of these new choices for people trying to buy an
Arizona home. These people need to know what they are getting into;
this loan could wind up costing them a lot of additional money in the
end. In the later term of the loan these lower income families may not
even be able to afford it any more.
This mortgage is basically
an adjustable rate mortgage that gives borrowers choices of how to make
their payments every month. There are four different choices that the
customer can choose from. The first two are based on a thirty and a
fifteen year adjustable rate mortgage. The next choice is an interest
only payment; this option will pay off the interest but not put any
money towards the principle amount of the mortgage. The last choice
is a minimum payment; it is this choice that makes this loan so tricky.
The minimum payment is determined using the low interest rate that was
offered to the customer over the first few months, the interest rate
that was used to draw in these borrowers. The big problem is that many
of these individuals choose only to make the minimum payment every month.
Since the interest rate has gone up since this initial period paying
only the minimum payment means that the borrower isn’t even covering
the interest. The amount of the interest that you did not pay is then
added to the amount of the loan. This means the amount that needs to
be paid back will continue to increase. The monthly minimum payments
will also increase since the principle amount of the loan has increased.
This means you are effectively paying them to charge you more money.
This can cause negative amortization. Under this there may have been
certain rules in your loan that will now require you to refinance.
It is likely that the buyer will eventually be unable to make the payment
and find himself in default. This loan can help people who only plan
on keeping the home for a short period of time. If you are unsure of
what this loan is it is best to stay away from it. It can be a good
idea for people who are aware of all the ins and outs of their mortgage,
but it could devastate a person who is not so familiar with mortgages.