Every where I go people ask me if I recommend payment option mortgage loans. I have been selling these loans for well over a decade, but I was called then negative amortization loans. You get a low monthly payment, and then at the end of the year the mortgage company holding your paper increases your mortgage balance. In some markets across the nation, this could be very risky to say the least. To be fair these loans have evolved. Now the loans offer 3 payment options each month. Borrowers choose from the fully indexed payment, the interest only or everyone's favorite the neg am payment. This loan is also being marketed cleverly as the "Pick a Payment Loan."

I started realizing how the popularity of these loans has increased over whelming over the last few years. Years ago it was popular with self employed people who had frequent cash flow issues. These days, realtors have begun pitching these mortgages, as exotic loans that magically help you qualify for a house that used to be out of your price range. Since underwriters have only been looking at the initial payment for the neg am payment people were all of a sudden qualifying for million dollar loans that used to be out of their league. In many ways these negative amortization loans have created a phenomena in California because the percentage of people having million dollar home have increased over fives times as much as incomes over the last ten years.

Of course skeptics suggest that in five years when these people's payment cap disappears that they will go into foreclosure. I have to wonder though, will you be living in this house in 5 years. Most young homeowners in southern California most likely will move at least once in the next five years. For those borrowers who cashed into new home with their earned equity made a good decision with the payment option ARM. This loan is not for the faint hearted person or the person with a fixed income who plans on staying in their home indefinitely.