"I want the low payments that are available on an option ARM, but I don't know what I should be looking for in shopping for one. Can you help?" Reluctantly, I don't much like the option ARM because of its complexity and hidden booby traps. However, some borrowers will ignore all warnings because they are mesmerized by the low initial monthly payment, calculated at rates as low as 1 percent. If you are going to take an option ARM anyway, knowing their major features may save you some grief. Here they are, in order of importance. Margin: The option ARM adjusts the rate monthly. That means that the lovely looking 1 percent rate you saw in the ads holds for just one month. In month 2 and every subsequent month, the rate is set to equal the most recent value of the rate index plus a margin. For example, assume your ARM uses MTA as the index and your margin is 3 percent. In May 2005, MTA was 2.633 percent. If your first month with this loan was May, in June your rate would jump from 1 p...
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