ARMs are different from Option ARMS
Reader comment on: Bernanke on Bubbles
Submitted by Cole Kendall (United States), Jan 4, 2010 09:16
While both products have similarities (the rate that you pay varies with an index rate, an interest rate that varies over time), regular ARMs are fairly ordinary mortgages. Option ARMS often had negative amortization, meaning that the buyer was paying such a low rate that the amount he owed the bank grew over time; this "feature" was absent from the ARMS of the 80s and 90s.
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