"Pay Option ARM"

The Pay Option Adjustable Rate Mortgage (POARM) has its own unique loan features. The POARM can "Negatively Amortize".

Notice I said "can" and not "will" amortize negatively.

POARM loans offer the borrower 4 payment options. The first option will cause the loan balance to increase.

POARM components include the following:

What is the POARM payment?

The starting rate sets the required monthly payment for the first 12 months.

For example, if the start rate (teaser rate) is 1.500%, the P & I monthly payment is based on a 30 year 1.500% amortizing payment.

          Note: Some lenders offer "Teaser" interest only loans.

Depending on the POARM terms, the starting interest rate will be set for a period of 1, 3, 6 or 12 months.

At the end of the teaser rate period, the loan interest due is based on the

fully indexed (index + margin) interest rate.

If the borrower continues to pay the teaser payment, that payment will not be sufficient to cover the required fully indexed interest payment. This difference is referred to as deferred (Negative) interest and is added to the current loan balance.

At the end of the 5th year, beginning the 61st month, the POARM payment is based on the following:

1. Amortization computation based on remaining number of loan months i.e.

               299, 298, 297, 296, ................3, 2, 1 and finally no loan balance..

2. current loan balance each period.

3. Fully indexed interest rate (FIR) each period.

4. Check "Life Cap" against FIR.

Beginning the 61st month, no further negative interest will be allowed. All future monthly payments will be based on the FIR or life cap.