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Option Arm Question
Moderators: Mortgage-X

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Dr. M
Posted 4/20/2006 4:48 AM (#995)
Subject: Option Arm Question
My question is after I begin making minimum payments on an option arm, is the next months new higher loan balance (which will now be more than I started) used to calculate the interest? For example if my starting loan is 240000 and I make a minimum payment that adds 700 of unpaid interest to my loan balance, will month # 2 interest be calculated off of the new loan balance of 240700 or 240000? I understand fully that the minimum payment remains the same. Thanks.
AppleLeafMtg
Posted 4/26/2006 7:22 PM (#1019 - in reply to #995)
Subject: RE: Option Arm Question
For most option arms the payment will remain the same for one year (all 12 payments) then increase by a maximum of 7.5% for each year thereafter until you hit the fully amortizing payment or deferr too much interest to where the loan will recast. Please reply to this thread if unclear. Thanks.
Alex
Posted 4/27/2006 6:51 PM (#1028 - in reply to #995)
Subject: RE: Option Arm Question
The direct answer to your questions is that the interest is usually calculated monthly on the balance that you owe.

Since the balance was increased by $700, month # 2 interest be calculated off of the new loan balance of $240,700.

Good luck
askforgreg
Posted 8/30/2006 8:40 PM (#1271 - in reply to #995)
Subject: RE: Option Arm Question
[QUOTE]Dr. M - 4/20/2006 1:48 AM

My question is after I begin making minimum payments on an option arm, is the next months new higher loan balance (which will now be more than I started) used to calculate the interest? For example if my starting loan is 240000 and I make a minimum payment that adds 700 of unpaid interest to my loan balance, will month # 2 interest be calculated off of the new loan balance of 240700 or 240000? I understand fully that the minimum payment remains the same. Thanks.[/QUOTE]

Different lenders have different guidelines. If it is truly "defered interest" they shouldn't be charging you interest on the defered part should they? But in many situations they don't actually defer the interest and it goes onto your principal balance monthly. You'd have to call whoever you make the payment to to find out for sure.
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