How do Option ARMs work?

Many people wonder how Option ARM's (Adjustable Rate Mortgages) actually work.
Well the situation is that the Mortgage holder actually has 4 different Options on what their monthly payments will be.

1. A 30 Year Amortizing Payment option (which reduces outstanding principal)
2. A 15 Year Amortizing Payment option (which reduces outstanding principal)
3. An Interest Only (IO) payment option.
4. A minimum payment (which increases the outstanding principal).

The attached video shows a good example of what could be in store for tens-of-thousands of borrowers that chose to pay the "minimum payment" option.