An interest only loan will keep you from building equity in the first few years, depending on the program. Since you're paying just the interest, your principal doesn't change. This is a good loan for someone who has credit issues or needs a very low mortgage and who plans to keep the property for an extended period of time.

The "option" arm is an adjustable with varying monthly payment options. Traditionally, you're given 4 choices: lowest PITI payment, interest-only, 15-year or 30-year ammortized. You might want to consider this program simply because it gives you the option, each month, to put more toward principal depending on what you can afford. Some months you can pay more, others you can pay the minimum.

Also, some lenders may be offering a 40-year loan. It's new but it's their way of opening up the market as people are being outpriced. You may frown at the idea of having mortgage payments for 40 years but, remember, most people sell or refinance every 4.7 years(and if you have an adjustable, you'll certainly be looking to refi after a few years.)

The below post isn't entirely correct; an interest-only loan does not prevent you building equity in the home. The two are not connected. In a stable (meaning literally stable, e.g. 0% growth) market, an Amortized loan does build equity (albiet slowly).

hit www.rogerv.com/InterestOnly_a.html
and
www.rogerv.com/option_arms.htm for more information on both of these.

Hi,

I am a Real Estate Broker in Sunnyvale, CA and also do mortgages to augment my real estate business.

My advice to you (All things being equal) ... is to avoid the "Triple option ARM". I can offer this type of program where you start out at payment amortization based on 1.9% interest rate. Your actual rate floats based on the index. The problem is that people typically make the minimum payment and end up owing more money over time. The underlying interest rate right now is 5.4% but the variabiity of the ARM makes it very dangerous.

I would suggest that if you want to minimize your payment in the short term ... You can either go with a 5 year fixed with 30 year amortization or you could go with a 5 year fixed with interest only ... the 5 year fixed programs are down around 4.75% interest rate but this will remain constant for the next 5 years. This way you at least have some safety if the interest rates start to spiral upward.

Regards,

Cole Carter

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