Secure Option ARM

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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 ...
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