DEFINITION of 'Secure Option ARM'

A type of payment-option adjustible-rate mortgage with a fixed-interest-rate period. The mechanics of a secure option arm are very similar to a payment option arm except that it has a fixed interest rate period similar to fixed period or hybrid ARM. In other words, secure option ARMs have the same monthly payment options as a payment option ARM, including a minimum payment option that is based on a temporary start interest rate that lasts for first one to three months. However, after the expiration of the temporary start interest rate, the secure option ARM has a fixed-interest-rate period similar to a fixed-period or hybrid ARM.

BREAKING DOWN 'Secure Option ARM'

While secure option arms offer more protection from payment shock than a true payment option arm, the monthly payment on a secure option arm still has the potential to increase substantially. This can occur if the negative amortization limit is reached or when the fixed-interest-rate period ends, which usually coincides with the first scheduled recast of the mortgage.

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