The 30 Year & 40 Year "Option" Adjustable Rate Mortgage Program
    
Consumers can now select any 1 of 8 "options" when they make their monthly payments with this "Option" Adjustable Rate Mortgage Program. This flexible Loan Program is extremely popular because the borrower can decide each month just how much he or she wants to pay on the mortgage that month. If the budget is tight, the borrower can make the "Minimum" payment with absolutely no penalty or extra charges. If there is some extra money coming in to the borrower during a period, he or she can make a regular "Fully-Amortized" payment or even an "Equity Build-Up" payment that has a larger "Principal" portion to pay down the Principal balance of the loan, again with no penalty or extra charge.
         
The borrower also has the choice of a 30 year or 40 year amortization schedule so that the monthly payments can be lower with the longer 40 year term. The longer term does, however, increase the overall cost of the loan since payments are made for 40 years instead of 30 years. The 40 year amortization schedule option can be appropriate if the borrower only expects to live in the house for a shorter period of time, say 2 to 5 years, and wants to make the monthly payments as low as possible. This would allow the borrower to finance living in the home at a lower cost hoping to be able to sell the home at a profit. Or, if the borrower expects to have a higher income flow in the future, the 40 year amortization schedule would allow him or her to make lower payments until the higher income flow becomes reality.
    
Because this "Option" Loan Program has an "Adjustable" interest rate, the borrower will experience an increase or decrease in the interest rate on the loan as interest rates rise or fall. The frequency of the "adjustment periods" at which time the interest rate adjusts to current rates is either monthly or annually. The borrower decides which "adjustment period" he or she wishes. The interest rate is based on an "index" and a "margin". The "index" is usually tied to Treasury Bills and the "margin" is the spread over the T-Bills that the lender needs to make a profit for taking the risk of loaning the borrower the funds. Please visit Adjustable Rates for more infomation. The "Options" on this loan will allow the borrower to deal with any increase and decrease in the interest rate by permitting him or her to make the "Minimum" payment if interest rates go up and the "Equity Build-Up" payment if interest rates go down. This Loan Program even permits the borrower to make small "Interest Only" payments if interest rates go up, that will "defer" some of the interest due. This "deferred" interest will be added to the principal balance of the loan, known as "negative amortization". This will cost the borrower more interest in the future since the principal amount grows, but will allow him or her to manage their financial budget during periods of high interest rates. Other Adjustable Rate Mortgages without these "options" will require the borrower to pay higher monthly payments when interest rates go up. This Loan Program does not require the borrower to make the higher monthly payment when rates rise since the borrower can opt to make the "Minimum" payment on any monthly payment date.
    
In addition to the 8 "Options" provided to the borrower each and every month, this Loan Program also offers "Interest Rate Caps" that restrict the amount that the monthly payment can move at each Adjustment Period and over the Life of the Loan. These "Caps" will protect the borrower when interest rates go up, especially when they increase in large increments over short periods of time. On the other side of that coin, the "Caps" will slow down the rate that the interest rate on the loan drops as interest rates decline. Please visit Adjustable Rates for more information.
    
Another favorable feature offered with this Loan Program is the "Fixed" interest rate option for the first 1,3, 5 or, in some cases, 7 years. This means the borrower can ask that the interest rate on the loan be "fixed" for the first 1,3,5 or 7 years and then revert to the "adjustable" interest rate for the remainder of the life of the loan. This feature would be used if the borrower feels that interest rate are going to rise over the next 1,3,5 or 7 years and he or she wants to "lock in" a fixed rate during that period. The adjustment period would then become monthly at the end of the "fixed" rate period. Go here for some examples of these options.
    
Lets look at the 8 "Options" available to the borrower with this 30 year & 40 year Loan Program:
          

    
A. Monthly Interest Rate Adjustment Periods [Code: 30/Mo]
    The interest rate on the loan adjusts each month over the life of the loan.
    
B. Annual Interest Rate Adjustment Periods [Code: 30/Yr]
    The interest rate on the loan adjusts each year over the life of the loan.
  
C. 1 Year Fixed Rate [Code: 30/1/1]
    This interest rate is "fixed" for the first year (sometimes at a very low
    intro rate) and then adjusts each year.
    
D. 3 Year Fixed Rate [Code: 30/3/1]
    This interest rate is "fixed" for the first 3 years and then adjusts each year.
   
E. 5 Year Fixed Rate [Code: 30/5/1]
    This interest rate is "fixed" for the first 5 years and then adjusts each year.
   
F. 7 Year Fixed Rate [Code: 30/7/1]
    This interest rate is "fixed" for the first 7 years (not always available)
    and then adjusts each year.
    
Sample monthly payment "Options" available on this Loan Program (All the following figures are for illustrative purposes only and do not represent actual amounts. Actual figures can be calculated when you decide on the actual terms and options on your loan).
    
1. Sample Principal Amount of Loan: $100,000, 2% Initial Interest Rate, 30 Year Term, Monthly Interest Rate Adjustments.
     
2. Sample Monthly Payment Options: (Use for illustration only, your payments will vary depending on the payment number, remaining principal balance and origination date.)
    

    
A. Monthly Interest Rate Adjustment Periods [Code: 40/Mo]
    The interest rate on the loan adjusts each month over the life of the loan.
  
B. Annual Interest Rate Adjustment Periods [Code: 40/Yr]
    The interest rate on the loan adjusts each year over the life of the loan.
  
C. 1 Year Fixed Rate [Code: 40/1/1]
    This interest rate is "fixed" for the first year (sometimes at a very low
    intro rate) and then adjusts each year.
  
D. 3 Year Fixed Rate [Code: 40/3/1]
    This interest rate is "fixed" for the first 3 years and then adjusts each year.
  
E. 5 Year Fixed Rate[Code: 40/5/1]
    This interest rate is "fixed" for the first 5 years and then adjusts each year.
  
F. 7 Year Fixed Rate[Code: 40/7/1]
    This interest rate is "fixed" for the first 7 years (not always available)
    and then adjusts each year.
  
Sample monthly payment "Options" available on this Loan Program . (All the following figures are for illustrative purposes only and do not represent actual amounts. Actual figures can be calculated when you decide on the actual terms and options on your loan).
  
1. Sample Principal Amount of Loan: $100,000, 2% Initial Interest Rate, 40 Year Term, Monthly Interest Rate Adjustments.
  
2. Sample Monthly Payment Options: (Use for illustration only, your payments will vary depending on the payment number, remaining principal balance and origination date.)
  

    
The 40 Year Term on this Mortgage helps lower the Option #3: "Full Interest & Principal" Monthly Payment because the payment is amortized over a 40 year period of time instead of a 30 year period. This has the effect of lowering the monthly scheduled payment. It also, of course, has the effect of costing the borrower more over the entire life of the 40 year loan since you will be paying interest for an extra 10 years. This would be helpful for those who only expect to stay in their home for 2,3,4 or 5 years during which time they would like the lower payment. Or those who expect to refinance their home after 3 to 5 years and just want the smallest monthly payment possible for now.