Why Option ARMs are Not a Good Idea..

There are lenders out there advertising interest rates as low as 1%. Borrowers beware! This is total nonsense. There's an old saying: "If it sounds too good to be true, it probably is".
The Option ARM is a gimmick loan that is sold in such a way that it takes advantage of the borrower's lack of knowledge.

A few reason's why I think the Option ARM is a bad idea:

1. Negative Amortization - If the borrower pays the minimum payment every month the balance of the loan will increase. The borrower will owe thousands of dollars more on their home in a very short period of time. This is because the interest rate the borrower actually signed up for - is much higher than the teaser rate they think they are paying.

2. Your interest rate is actually higher than what you could have gotten on a conforming loan. The low teaser rate you get - is only a portion of the interest that's actually accruing on the balance of your loan. Typically - Option ARM loans have a combined interest rate of at least 8.25%, but most are even higher than that.

3. Because the loan balance continues to rise over time, the borrower's equity decreases. So - you are left in a worse place financially in the long run.