A flexible payment mortgage is just that: a mortgage that lets you choose from various payment options each month. It’s probably the most flexible type of adjustable rate mortgage (ARM).
Flexible payment mortgages are popular among people whose incomes fluctuate throughout the year. Another thing that makes flexible payment mortgages popular is a low introductory rate, which keeps payments down in the early stages of repayment.
You’ll get a statement each month offering you up to four payment choices. The lowest covers interest only; the highest could be the equivalent of the monthly payment for a 15-year conventional loan. Ideally, you would select one of the higher payment options as often as possible. Otherwise, you could end up with very little equity in your home, and possibly owe even more than you borrowed.
Like any ARM, flexible payment mortgages cost more when interest rates are rising, and less when they are falling. The loan is recalculated every five years, and your minimum and maximum payments are likely to change then, too.
Flexible payment mortgages are admittedly complicated and might not be the best choice for everyone. But homeowners who can be disciplined about making higher payments as often as possible could find flexible payment mortgages an appealing hedge against times when money is tight.