The Ultimate Pick-A-Pay Loan?

Distressed homeowners may have overlooked the ultimate pick-a-pay loan.

Older homeowners who find themselves in financial distress are likely overlooking the ultimate pick-a-pay loan that’s hiding in plain sight. Pick-a-pay mortgages or option ARM loans were the rage in the years leading up to the housing crash and economic crisis of 2008. These adjustable-rate mortgages offered homeowners the option to make a minimum payment that didn’t even cover that month’s accumulated interest, an interest-only payment, or a fully-amortized payment that covered both interest and principal. The trick was making only the minimum payment would only last 12 to 60 months at which time the borrower experiences payment shock with payments that may be 63% higher than what a regular mortgage payment would have been.

Another trigger was if the negative amortization or growing loan balance reached 110 or 125 percent of the loan’s starting balance larger payments would be required. Today the seven most-popular mortgages are fixed-rate or conventional loans, adjustable-rate mortgages, interest-only mortgages, jumbo loans, FHA mortgages, VA loans, and USDA.

The good news is the majority of mortgages held in the U.S. are fixed-rate loans. This substantially reduces the likelihood of a wave of defaults and foreclosures. However, the bad news is many older homeowners have been pushed into a twisted version of a pick-a-pay. They must pick which bills to pay in order to keep their mortgage current or risk potential foreclosure.

If there’s one thing consumers like it’s choice. And that’s exactly what a…

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