Option ARM Mortgages

Option ARM is an Adjustable Rate Mortgage like most others in its origins. It consists of taking an index, most commonly the MTA (12 month Treasury Average), CODI (Cost of Deposit Index), and COSI (Cost of Savings Index), then adding a margin to total the final interest rate.

Unlike other ARM's where the principal and interest or simple interest payment is calculated from the total of the index and margin, the Options ARM offers 4 monthly payment options every month (Sometimes called Pick-A-Payment), giving you the opportunity to choose which payment gets made based on your economic condition at the time the payment is due. One of those payments is less than the monthly accrual of interest resulting in negative amortization.  This monthly payment option is where the Option ARM derives its most common name. Other names the Option ARM is known by are: Cash-Flow ARM's, Pay Option ARM's, Neg-Am's and Pick a Payment Loans.

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