Many popular mortgage products, such as payment option ARMs, carry a great deal of payment-shock risk. Consumers are drawn to these mortgages because of the relatively low initial monthly payments they offer. All financial decisions, including the choice of a mortgage, should be made by carefully considering the risk versus the reward. Risks must be identified and measured through insightful analysis. When risks, such as payment shock, are recognized and measured, they can be managed or avoided.
Investment dictionary. Academic. 2012.
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Payment Option ARM — A monthly adjusting adjustable rate mortgage (ARM) which allows the borrower to choose between several monthly payment options: a 30 or 40 year fully amortizing payment, a 15 year fully amortizing payment, an interest only payment, a minimum… … Investment dictionary
international payment and exchange — ▪ economics Introduction international exchange also called foreign exchange respectively, any payment made by one country to another and the market in which national currencies are bought and sold by those who require them for such… … Universalium
Adjustable-rate mortgage — A variable rate mortgage, adjustable rate mortgage (ARM), or tracker mortgage is a mortgage loan with the interest rate on the note periodically adjusted based on an index which reflects the cost to the lender of borrowing on the credit… … Wikipedia
Negative amortization — In finance, negative amortization, also known as NegAm, deferred interest or graduated payment mortgage, occurs whenever the loan payment for any period is less than the interest charged over that period so that the outstanding balance of the… … Wikipedia
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Negative Amortization — An increase in the principal balance of a loan caused by making payments that fail to cover the interest due. The remaining amount of interest owed is added to the loan s principal, which ultimately causes the borrower to owe more money. For… … Investment dictionary
Secure Option ARM — A type of payment option adjustible rate mortgage with a fixed interest rate period. The mechanics of a secure option arm are very similar to a payment option arm except that it has a fixed interest rate period similar to fixed period or hybrid… … Investment dictionary
Amortized Loan — A loan with scheduled periodic payments of both principal and interest. This is opposed to loans with interest only payment features, balloon payment features and even negatively amortizing payment features. Borrowers who choose amortized loans… … Investment dictionary
Interest-Only ARM — An adjustable rate mortgage (ARM) with an initial interest only payment period. During the interest only period, only the calculated interest must be paid; no principal must be repaid. The length of the interest only period varies with each… … Investment dictionary
Recast Trigger — A clause in a loan contract that causes an unscheduled recasting of the loan s remaining amortization schedule if and when certain conditions are met. A recast trigger is most often associated with negative amortization mortgages, which typically … Investment dictionary