Christopher gave you a great answer about what an ARM is, I will expand to tell you that adding the "interest only" option on an ARM is probably not what you want to do. The fact the you don't know what it its, is evidence that it's not for you.
Interest only is a non-amortizing loan. Most interest only loans are for a set period of 10 years, this means that for the first 10 years, you only pay the interest, so after 10 years on a 300K loan, you will still owe 300K. Why would one do this? Well, back when homes were appreciating at 8% a year, it made sense to do it and make the minimum payment and have appreciation build equity, while investing the savings elsewhere. Today, it does not make a whole lot of sense except to a very specialized group of people. Don't do a 5/1 interest only, you probably should not do a fully amortized 5/1 either unless you know exactly what you are doing.
CA Mortgage Loan Officer
· 9 years ago