DEFINITION of 'Payment Option ARM'
A monthly adjusting adjustablerate mortgage (ARM) which allows the borrower to choose between several monthly payment options: a 30 or 40year fully amortizing payment, a 15year fully amortizing payment, an interestonly payment, a minimum payment or any amount greater than the minimum payment.
The minimum payment option is calculated based on an initial temporary start interest rate. While this temporary start interest rate is in effect, this is the only payment option available. It is a fully amortizing payment. After the temporary start interest rate expires, the minimum payment amount remains a monthly payment option; however, whenever a payment is made which is less than the scheduled interestonly payment, deferred interest is created.
BREAKING DOWN 'Payment Option ARM'
Payment option ARMs have a great deal of paymentshock risk. The monthly payments might increase for several reasons, including an unscheduled recast when a negative amortization limit is reached. The fully indexed interest rate is important in this calculation. The rate of negative amortization is a function of the interestonly payment (based on the fully indexed interest rate) and the minimum payment. If the fully indexed interest increases substantially, the rate of negative amortization increases when the minimum payment is made, increasing the likelihood that the negative amortization limit will be reached and the mortgage will recast.

Flexible Payment ARM
A type of adjustablerate mortgage that allows the borrower to ... 
Payment Option ARM Minimum Payment
An option to make minimum payments on an payment option ARM, ... 
Fully Amortizing Payment
A periodic loan payment, part of which is principal and part ... 
Amortized Loan
A loan with scheduled periodic payments of both principal and ... 
GrowingEquity Mortgage
A fixed rate mortgage on which the monthly payments increase ... 
Payment Shock
The risk that a loan's scheduled future periodic payments may ...

Home & Auto
Choose Your Monthly Mortgage Payments
Exotic mortgages allow you to decide how much to pay. Find out how much they really cost. 
Credit & Loans
Mortgage Amortization Strategies
Should you get a 30year mortgage? A 15year one? Ways to decide which mortgage is the best fit. 
Home & Auto
Option ARMs: American Dream Or Mortgage Nightmare?
Option adjustable rate mortgages could make or break your homebuying experience. 
Professionals
Amortization
Amortization describes the paying off of debt in regular installments over a period of time. 
Credit & Loans
Mortgage Basics: The Amortization Schedule
By Lisa SmithThe amortization schedule for a residential mortgage is a table that provides a breakdown of the schedule of payments from the loan's first required payment to the loan's final payment. ... 
Options & Futures
This ARM Has Teeth
Find out how to avoid getting bitten when your mortgage rate resets. 
Credit & Loans
How Interest Rates Work On A Mortgage
A stepbystep explanation of the interest calculations, mortgage types, and how the loan is eventually "retired" – which means paid off. 
Credit & Loans
Understanding The Mortgage Payment Structure
We explain the calculation and payment process as well as the amortization schedule of home loans. 
Options & Futures
Make A RiskBased Mortgage Decision
Find out how to choose which mortgage style is right for you. 
Credit & Loans
What is an Amortization Schedule?
An amortization schedule is a table that shows the amounts of principal and interest that comprise each loan payment.

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 >> 
Is there any time I would want to have a zeroprincipal mortgage?
As a general rule, entering a zero principal mortgage, or what is commonly referred to as an "interestonly mortgage", is ... Read Answer >> 
Why does the majority of my mortgage payment start out as interest and gradually ...
When you make a mortgage payment, the amount paid is a combination of an interest charge and principal repayment. Over the ... Read Answer >> 
What does amortization mean in the context of a pension plan?
Discover when and why accountants use amortization techniques in the context of pension plans, and why those changes help ... Read Answer >> 
What are the different types of subprime mortgages?
Clarify your understanding of subprime mortgages. Learn about the different types, how they work and when they might be beneficial. Read Answer >> 
Is a deficit in the balance of payments a bad thing?
Discover how it might be possible to run a balance of payments deficit, what that means in terms of international trade and ... Read Answer >>