Option ARM Mortgages

This is the next shoe to drop and it seems to be beginning to drop now. The mortgages differ from other ARMs by offering an option to pay only the interest each month or a low minimum payment that leads to a rising balance in the loan's principal. When the balance of the loan reaches a certain level or the mortgage hits a specific date, the borrower must begin making full payments to cover the new amount. The loan's interest rate also may have been fixed at a low level for the first few years with a so-called teaser rate, but then reset to a higher level. Because the new monthly payments can be five or 10 times what borrowers are accustomed to paying, they threaten a much greater hit to the consumer than the subprimes. Many of these are in the higher end market above $400,000. These people were expecting to refinance when the value of their home went up. Sadly, it has gone down instead. Many of them will be mailing in their keys. The banks refer to this as jingle mail.