Sunday, December 28, 2008

Option ARM resets 2009, 2010, 2011, 2012

The trickle of Option-ARM's that have been resetting is going to become a flood in late 2009 to 2011. The amount of the payment increase could be 40% to 80% higher for many borrowers.

Again, the "Option" in "Option-Arm", allows a borrower to pay a minimum-payment for several years, which actually causes a negative-amortization of the loan (aka, the outstanding loan balance increases--even though monthly payments are being made)--And once the reset is cast, the monthly payments that a borrower has to pay increases drastically.

Unfortunately, as the price of housing continues to decline, the chances of people who obtained option-ARMs in the later years of the housing bubble (2006 & 2007) will likely have lost significant equity and will find refinancing to be most difficult.

To see how an Option ARM works--click here.

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