A Payment Option ARM or Option ARM  is an Adjustable Rate Mortgage that allows the borrower to choose among various payment options each month. Typically, there are 15 year and 30 year fully amortizing payment options, an interest only payment option, and an alternative minimum amount that defers payment of some interest, resulting in negative amortization.

PITI - An acronym that stands for Principal, Interest, Taxes and Insurance, which are the four components of your monthly mortgage payment. The payments of principal and interest go directly towards repaying the loan while the taxes and insurance (both homeowner’s and PMI) go into an escrow account to be paid on your behalf by your loan servicer when they are due. Not all loans require you to escrow your taxes and insurance.

Points or Discount Points - Amounts paid to the lender based on a percentage of the loan amount to lower or "buy down" the interest rate. Each point represents one percent of the loan amount. For example, one point on a $100,000 mortgage is 1% of $100,000, or $1,000.

 

Paying one point on a 30 year fixed mortgage might buy down your interest rate 1/8 (.125) of one percent. Discount points are used to calculate your Annual Percentage Rate.