"Can you explain flexible-payment ARMs, and their pros and cons?" A flexible-payment ARM (FPARM) is an adjustable-rate mortgage that allows (but does not compel) borrowers to make very low initial mortgage payments that rise over time. The major drawback is that those who select the minimum payment option may suffer "payment shock" – a sudden and sharp increase in the payment for which they are not prepared. FPARMs are also very complicated, which creates a danger that borrowers will take them without fully understanding the risks. Borrowers who don't understand FPARMs, furthermore, may overpay, which increases the risk of payment shock. The main selling point of FPARMs is the low payment in the early years. This allows borrowers to buy more costly houses, or use the monthly pay...
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