DEFINITION of 'Flexible Payment ARM'

A type of adjustable-rate mortgage that allows the borrower to select from four different payment options each month: a 30-year, fully amortizing payment; a 15-year, fully amortizing payment; an interest-only payment or a "minimum payment".

Flexible payment ARMs are also known as "payment option ARMs".

BREAKING DOWN 'Flexible Payment ARM'

Flexible payment ARMs are popular in high-cost areas during times of rising home prices. Borrowers who chose to make the minimum payment option care little about the amount that is added to their mortgage balances through negative amortization as it is easily eclipsed by the rising value of their homes. This is a risky strategy. A past history of rising home values should not be used to project future home values.

RELATED TERMS
  1. Payment Option ARM

    A monthly adjusting adjustable-rate mortgage (ARM) which allows ...
  2. Payment Option ARM Minimum Payment

    An option to make minimum payments on an payment option ARM, ...
  3. Fully Amortizing Payment

    A periodic loan payment, part of which is principal and part ...
  4. Negative Amortization

    An increase in the principal balance of a loan caused by making ...
  5. Graduation Rate

    The percentage increase in the monthly payment on a graduated ...
  6. Deferred Interest

    The amount of interest that is added to the principal balance ...
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