Option Adjustable-Rate Mortgage Definition

An option ARM is a type of mortgage that offers the borrower several optional or flexible payment methods. The borrower can make payments of interest and principal as with a conventional mortgage or can chose to make interest-only payments. This optional pay schedule is flexible and allows the borrower discretion in "how much" to pay during a given billing cycle, but it must be borne in mind that making minimal payments will not decrease the principal-in fact, some option ARM mortgages will negatively amortize if the minimum payment schedule is routinely utilized.