Secure Option ARM

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Payment Shock

    The risk that a loan's scheduled future periodic payments may ...
  2. Payment Option ARM

    A monthly adjusting adjustable-rate mortgage (ARM) which allows ...
  3. Deferred Interest

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

    An increase in the principal balance of a loan caused by making ...
  5. Adjustable-Rate Mortgage - ARM

    A type of mortgage in which the interest rate paid on the outstanding ...
  6. Total Annual Loan Cost (TALC)

    The projected total cost that a reverse mortgage holder should ...
Related Articles
  1. Insurance

    ARMed And Dangerous

    In a climate of rising interest rates, having an adjustable-rate mortgage can be risky.
  2. Home & Auto

    Option ARMs: American Dream Or Mortgage Nightmare?

    Option adjustable rate mortgages could make or break your home-buying experience.
  3. Stock Analysis

    How Two Harbors' Derivatives Work?

    Mortgage REITs, like Two Harbors , have cut their dividend payments as interest rate trends have eaten into profitability under the business models.
  4. Options & Futures

    The Perks of Trading Coffee Options

    As more people begin to trade coffee, we explain how coffee options work, who uses them, what drives valuations, and the risks and rewards.
  5. Trading Strategies

    Top Day Trading Instruments

    Day trading is an intense and often appealing activity. Investopedia provides the list of top financial instruments for day trading.
  6. Stock Analysis

    How Chimera Investment Bear The Brunt Of REITst?

    Following the financial crisis, REITs that specialized in investing in mortgage-backed securities produced huge gains for their shareholders.
  7. Credit & Loans

    Reverse Mortgages: How To Find A Good One

    Finding a reverse mortgage generally means using a lender that specializes in them. Here's how to find a reputable one.
  8. Stock Analysis

    How Are Interest Rates Affecting Annaly Cap Mgmt?

    Annaly Capital Management reported a net loss of $658 million thanks to the mortgage REIT's strategy of hedging its exposure to higher interest rates.
  9. Savings

    Mortgage Faceoff: Bank of America Vs. Wells Fargo

    Which bank offers the better mortgage deal? Here's how they compare on two popular types of mortgage.
  10. Options & Futures

    Give Yourself More Options With Real Estate Options

    Real estate options have many benefits, including a smaller initial capital requirement.

You May Also Like

Hot Definitions
  1. Risk Averse

    A description of an investor who, when faced with two investments with a similar expected return (but different risks), will ...
  2. Fixed-Charge Coverage Ratio

    A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It is calculated ...
  3. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  4. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  5. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  6. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
Trading Center