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. Negative Amortization

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

    The percentage increase in the monthly payment on a graduated ...
  5. Growing-Equity Mortgage

    A fixed rate mortgage on which the monthly payments increase ...
  6. Interest Due

    The portion of a current mortgage payment that is comprised of ...
Related Articles
  1. Personal Finance

    Mortgage Amortization Strategies

    Should you get a 30-year mortgage? A 15-year one? Ways to decide which mortgage is the best fit.
  2. Investing

    Payment Option ARMs: A Ticking Time Bomb?

    With these mortgages the loan's principal can continue to increase - even as payments are made.
  3. Personal Finance

    Make A Risk-Based Mortgage Decision

    Find out how to choose which mortgage style is right for you.
  4. Personal Finance

    How Interest Rates Work On A Mortgage

    A step-by-step explanation of the interest calculations, mortgage types, and how the loan is eventually "retired" – which means paid off.
  5. Personal Finance

    Understanding the Mortgage Payment Structure

    We explain the calculation and payment process as well as the amortization schedule of home loans.
  6. Personal Finance

    ARMed And Dangerous

    In a climate of rising interest rates, having an adjustable-rate mortgage can be risky.
  7. Personal Finance

    Ways to Be Mortgage-Free Faster

    Getting rid of this debt faster has bigger benefits than you might think.
  8. Investing

    Mortgages: Fixed Rate Versus Adjustable Rate

    Choosing the right mortgage can help homebuyers avoid costly mistakes. Learn the difference between fixed- and adjustable-rate loans.
  9. Personal Finance

    Would You Save with an Interest-Only Mortgage?

    Sophisticated borrowers might want to consider one of these loans to keep their initial payments low, but they need to fully understand the risks.
  10. Personal Finance

    What is an Amortization Schedule?

    An amortization schedule is a table that shows the amounts of principal and interest that comprise each loan payment.
RELATED FAQS
  1. How should you choose the amortization period for your mortgage?

    Read about key considerations that homeowners should take into account before choosing the amortization period for their ... Read Answer >>
  2. What is the difference between a 2/28 and a 3/27 ARM?

    An adjustable rate mortgage (ARM) is a type of mortgage that has a fixed interest rate for a certain time period at the beginning ... Read Answer >>
  3. When Do Mortgage Payments Usually Start?

    Discover when your first mortgage payment is due and how it differs from rent. Learn about the closing process and why you ... Read Answer >>
Trading Center