Option ARM Loans

Q: What is an Option ARM loan?
A: The Pay Option ARM is a monthly adjustable rate mortgage. The interest rate you owe can increase or decrease on a monthly basis, based on the specific terms of your loan. However, the minimum monthly payment you are required to pay generally changes only once per year. If your interest rate increases in a given month but you don’t increase the amount of your monthly payment, then it is likely that your monthly payment will not be sufficient to pay the total interest due plus the principal for that month. If this occurs, the unpaid principal balance you owe will increase.

Q: Why is my principal balance increasing?
A: If you pay less than the Amortized Payment Option each month, you are not paying the total amount of interest that accrues. This deferred interest will cause your principal loan balance to increase, which will cause your future payments to increase.

Q: What are my payment options?
A: One or more of the payment options below may be available to you:

1.  Fully Amortized Payment Option – This option includes paying the amount necessary to pay the loan off (principal and interest) within a fully amortized term in substantially equal payments. This payment amount is calculated on the assumption that the current interest rate (index+margin) will remain in effect for the remaining term of the loan.

2.  15-Year Amortized Payment Option – This option includes paying the amount necessary to pay the loan off (principal and interest) within a 15-year term in substantially equal payments. This payment amount is calculated on the assumption that the current interest rate (index+margin) will remain in effect for the remaining term of the loan.

3.  Interest-Only Payment Option – This payment option includes paying the interest portion of the payment at the current interest rate. The principal balance will not be decreased by this payment.

4.  Minimum Payment Option – This payment option includes paying the minimum amount that SLS will accept for your payment. If this amount is not sufficient to cover the amount of interest due, the unpaid interest will be added to your principal balance, which will increase the total amount of your loan.

 

 

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