Can I pay more than option ARM monthly payment?

Question

I select option arm payment for home loan. The 1% interest monthly payment is 1500, if I pay 2000, will 500 go to my principal? Can I do that or I only have 4 payment options (min, i/o, 30, 15)?

Answer 1

Most Option Arm's I've seen have pre-payment penalties attached to it. Most are usually if you pay more than 5% of the loan at any one time.

You have four option.

1. Minimum - $1500

2. Interest only - This amount is greater than $1500

3. 30 Year amoritization - this amount is even more than option 1 & 2

4. 15 year amoritization - this amount is even more than option 1,2,3.

So if you're paying $2,000 does this amount = or exceed Option 2? If not then your $500 is going to pay for the interest.

To have your payment go towards prinicipal you'll need to make a payment that's equal or greater than option 3 and 4.

Good luck, I hope you're now educated on Option Arm.

I have to agree with the other posters, most mortgage brokers do a bad job in putting people into option arms. The reasons why is because they make a crap loan of money on option arms and they sell the "BS" to consumers that with an option arm they can chose to be flexible and if they are short on money for 1 month they can pay less.

If people can't be disciplined enough to pay their mortgage they shouldn't get one.

El

Answer 2

Your $1500 payment is not covering all the interest being charged right now. So you're probably adding a few hundred dollars to your balance every month.

You'd have to pay the IO payment PLUS $500 to get $500 towards your principal.

Apparently, 84% of option ARMs have a pre-payment penalty. In most cases, you can pay as much as 20% of the principal off in a year with no penalty, so paying small amounts is certainly ok. But do check your closing documents, specifically the NOTE and any RIDER to the note that talks about prepayment penalties. If you're confused when reading them, call your bank, loan officer, or the title company you closed at. Someone should be able to assist you.

And once again, it sounds like you were sold an option ARM with zero understanding of how your loan actually works. This is why I don't like the product, and don't like most of the people who sell them. Makes me look bad.

Answer 3

You're fine, knock yourself out. Even if there IS a pre-pay, it only kicks in according to the terms of the note, generally a greater than 20% payment on principal in the first 1, 2, or 3 years of the loan. Option ARMS vary widely in their characteristics, pull out your note and security insturments, there should be info either in the body of those documents or in the attached riders about pre pay. But I am certain you can make modest additional principal payments without penalty, I look at these types of documents all day long.

As long as your payments are current, the overage will go directly to principal.

Answer 4

Look at your documents. Some loans have pre-payment penalties. Generally any money over your payment goes directly to principal. Extra principal payments can dramatically reduce the term of your loan.

You can see the results from various situations as http://www.mortgage-net.com

Answer 5

with option arm loan- extra money you include with your minimal payment if it is less then interest only payment- they go to cover interest, and if this payment is higher then interest only option- then difrence is going towards your principal. if you pay more money then your minimum payment, but less then interest only payment it will reduce the negative amortization on your loan , so you can control how much you aquire every month. in most cases you can not pay off more then 20% of your mortgage ballance in 1-3 years depens of your loan terms and lender.