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An ARM loan (aka Adjustable Rate Mortgage) is a mortgage for which the interest rate is not fixed, but changes during the life of the loan in line with movements in an index rate.

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The margin is the number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

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With an adjustable rate mortgage, your future monthly payment is uncertain. Some types of ARMs put a ceiling on your payment increase or interest-rate increase from one period to the next. Virtually all types must put a ceiling on the rate increases over the life of the loan.

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Most ARM loans calculate the interest rate adjustment by adding a margin to the index.

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The frequency with which your interest rate may change is called the initial note adjustment period. The most common ARM adjustment periods are every 6 months or every 12 months. The frequency of ARM adjustments is established at the time of application and the terms will be outlined in your ARM note.

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Unless your loan document specifically allow for this option, you may not convert your loan to a fixed rate loan without paying off your current mortgage and refinancing to a fixed rate mortgage. If your loan documents do provide for this option, they will specify when you can exercise this option and how the fixed rate will be determined.

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The day when the interest rate changes on a adjustable rate mortgage (ARM). After an initial period where an ARM's interest rate remains the same, the rate changes on the adjustment date to reflect the current market rate. It will continue to adjust over the life of the loan.

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The limit on how much the interest rate on an adjustable rate mortgage (ARM) can go up or down. Most ARMs have two types of interest rate caps (1) lifetime caps, which are required by law, limit the increase and decrease of a rate over the full course of a loan. A 6% lifetime cap, for example, means the rate cannot go beyond 6% points over or under the initial rate; and (2) periodic caps, which limit the rate change from one adjustment period to the next, even if the market interest rates significantly rise or fall during this time. A lifetime cap is also referred to as a ceiling or floor.

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An economic indicator that lenders use to set an adjustable rate mortgage's (ARM) interest rate. Each ARM is tied to a specific index. Since some indices move up and down faster than others, it's wise to find out which index is connected to your ARM.

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The starting interest rate of an adjustable rate mortgage (ARM). The initial interest rate on an ARM is fixed for a certain period then adjusts to reflect overall market rates. Fixed rate loans, on the other hand always have the same interest rate for the life of the loan.

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To set up this free service, download an Automatic Drafting Authorization Form and follow the simple instructions. Option One withdraws payments on the 1st, 5th, 10th or 16th day of each month. You must select a draft date that is on or before the late charge date specified in your Mortgage Note. If your selected date falls on a weekend, the withdrawal will occur on the next business day. Please ensure funds are available on your selected date. If you need assistance call our helpful customer service associates 800.648.9605.

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If you requested automatic payment withdrawal at your closing, your payments will not be withdrawn until you receive a confirmation letter from Option One. This confirmation letter will confirm that your automatic payment withdrawal has been setup and the date of your first payment withdrawal. The automatic withdrawal program can take up to 60 days to start from the time Option One receives your request. This is because a test run must be processed prior to the first automatic withdrawal.

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Your automatic withdrawal will be returned as non-sufficient funds just like a paper check would. To prevent this from happening, please contact Customer Service at 800.648.9605 to work through a solution.

Please note: All payments made to cover non-sufficient funds must be from certified funds (i.e. Cashier’s Check, Money Order, Western Union Quick Collect®, Bank Wire, etc.). The automatic withdrawal program will withdraw funds for your previous month’s amount due until the non-sufficient funds payment is received, including any non-sufficient funds fees. Additionally, if two non-sufficient funds transactions occur within a six-month period, automatic withdrawal will be discontinued.

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To cancel the automatic withdrawal plan you will need to download an Automatic Drafting Deletion Form and follow the simple instructions. If you need assistance call our helpful customer service associates 800.648.9605.

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An escrow account (also known as an impound account) is an account established with Option One to help borrowers pay taxes and insurance premiums for your mortgaged property. Deposits are made to the escrow account through monthly payments made along with the principal and interest amounts due. Note that payments of supplemental tax bills are not paid from your escrow account. Please pay any supplemental tax bills directly to the taxing authority.

Please note:an escrow account is not automatically established unless it becomes necessary to add insurance to your property or there is a past due tax bill on your property. In these cases, Option One will notify you of these changes and advise you of the new required payment amount.

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You may contact Customer Service for detailed instructions on how to set up an escrow account by calling 800.648.9605. Escrow accounts can be set up at the loan closing or any time after that.

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This is the amount of money in your escrow account available to pay taxes or insurance for your property. The escrow balance can be found on your monthly billing statement or by viewing your Current Loan Information page or the Escrow Information page in the My Account section of this Web site.

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The amount of escrow applied to your escrow account is determined by the amount needed to pay your taxes and or insurance on a yearly basis. This amount will change only when the amount needed to pay these items either increases or decreases, or the scheduled payment for the last year has not been met. You can find the amount of your escrow payment listed on your monthly billing statement or by visiting the Escrow Information page in the My Account section of this Web site.

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While, in most instances, your loan documents specify that you must make monthly contributions to an escrow account for payment of your taxes and insurance, Option One does not require that you set up an escrow account as a prerequisite when approving your loan. Option One’s policy is generally to set up an escrow account only upon the request of the borrower but Option One reserves the right to impose an escrow account under certain circumstances.

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With an escrow account, you do not have to worry about paying a large tax or insurance bill when it comes due. Option One will always ensure that your taxes and insurance are paid when they become due. You do not have to worry about budgeting for these items.

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An escrow account acts like a savings account maintained by the lender. Monthly deposits, which are built into your mortgage payments, are made to your escrow account for future disbursements of your property taxes and/or insurance premiums. Option One will use the funds deposited to pay your property taxes and insurance premiums as they become due.

Please note: Escrow accounts provide only for property taxes on parcels secured by your mortgage and/or insurance that is required by your mortgage. Example: If your property were not in a flood zone, flood insurance would not be required on your property, but if you choose to carry flood insurance, funds collected in your escrow account would not pay for this type of insurance.

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Your monthly payments will increase depending on the amount of your taxes and/or insurance premiums.

To estimate how much your monthly mortgage payment would increase after establishing an escrow account, first gather the following figures and use the formula below:

1) Total Annual Property Taxes for all collecting agencies = ____________________
+
2) Total Annual Insurance Premium for all required policies = ____________________

Total of lines 1 and 2 divided by 12
Equals estimated total monthly escrow collection = ________________________

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In the activity section of your billing statement you will see what was paid, how much and when it was paid. Please note, payments made will only be reflected on the billing statement sent the month following the payment. Also you will receive a very detailed annual escrow analysis that will show, among other items, moneys collected, disbursements made, and anticipated disbursements for the coming year.

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Option One will pay the full amount due for your taxes and/or insurance premiums even if you are short in your escrow account, then we will simply collect the shortage back from you in small, additional monthly installments.

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There is no fee required to establish an escrow account with Option One, however a deposit for the purpose of creating an initial balance in your escrow account is needed. Over the first twelve months your escrow account is active, Option One will collect this deposit in 12 equal payments. This amount is in addition to that which is collected to pay all installments of taxes and/or insurance premiums that will be paid from your escrow account.

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All taxes and insurance premiums must be paid in full and current prior to establishing an escrow account. If you have a tax or insurance premium due within one (1) month of our receipt of your escrow setup request, you must first pay those items as they come due. In addition you may need to provide Option One with proof of payment when submitting your request.

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A copy of both sides of your canceled check or a paid receipt from your tax agency or insurance company is acceptable.

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We will respond to you in writing once we have completed your escrow setup. You will receive a letter from us with the details of your escrow account, as well as what your new payment amount is and when that payment becomes effective.

In addition, you will receive an initial Annual Escrow Account Disclosure Statement shortly thereafter. This statement will give you your escrow projection for the next 12 months.

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Your escrow analysis statement will show you what is projected to be paid out of your escrow account over the following 12 months to ensure that your property taxes and related insurance premiums are kept current. You should review this document to make sure that Option One is planning to pay your taxes and/or insurance premiums at the correct time and for the correct amount. Discrepancies should be reported to Option One immediately.

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Option One will analyze your escrow account at least once every 12 months to ensure there are sufficient funds being collected to make all scheduled payments as needed. The analysis determines if any adjustments need to be made to your escrow payments based on projected escrow disbursements for the coming year. Each time you receive an analysis statement you should review it for accuracy and contact Option One if you have any questions regarding your tax and/or insurance premium disbursement(s). (A sample disclosure is included)

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You are free to change insurance carriers any time you wish. Having an escrow account does not mean you cannot make changes to your insurance. For a smooth transition, please ensure your new insurance company is aware that your insurance is escrowed and provide them with the following mailing address so Option One can ensure your monthly premium is paid on time.

Option One Mortgage Corporation
Attn: Insurance Department
PO Box 949 Orange, Ca 92856

In addition, you can update your insurance information on our Web site at www.updatemyinsurance.com/01

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You are free to make policy changes as long as they comply with the insurance requirements set forth by your mortgage. Your insurance agent should be familiar with these requirements and, in most cases, will let you know if your changes will be acceptable.

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If you are escrowed for taxes and you receive a tax bill you can call Option One’s Customer Service Department at 800.648.9605 or mail a copy of your tax bill (please keep the original for your records) to:

Option One Mortgage
Attn: Tax Department
P.O. Box 5155
Pasadena, CA 91107-0515
Fax: 626-345-2046

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If you have received this type of tax bill, this would indicate that your property is a new purchase and/or new construction. Supplemental or added assessment tax bills are collected due to changes in the assessed value of the property associated with change of ownership or substantial property improvements. We suggest that you wait until you begin receiving fully assessed tax bills prior to setting up an escrow account. Option One is not able to pay your supplemental or added assessment tax bills.

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At the time your loan was originated, your tax amounts should have been computed based on the fully assessed value of your property at the time of purchase. Therefore, your escrow deposits will be collected at the higher tax amount even though Option One will only be able to pay the secured tax bill that may not yet include the additional amounts. However, Option One may be able to offer some assistance if you are having problems paying the supplemental or added assessment tax bills. Please contact Option One’s Customer Service Department at 800.648.9650 so they can discuss your options with you.

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If you have questions about your escrow account, please contact Option One immediately. Our Customer Service Department can be reached at 800.648.9605 to answer any of your questions.

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Setting up an escrow account will not affect your automatic payment drafting. Once Option One sets up your new payment, it will draft from your bank account at the new payment amount. It will be your responsibility to ensure that there are sufficient funds in your account on your scheduled payment drafting date.

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Flood insurance provides monetary protection against direct physical loss by or from a flood to an insured property. Standard homeowner’s insurance does not cover property damage caused by a flood.

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The federal government first mandated flood insurance coverage for properties in designated flood hazard areas in 1973 by requiring federally regulated banks, mortgage companies, loan servicers and other lending institutions to make flood insurance coverage a condition of the loan.

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In 1979, through an executive order of President Carter, FEMA was created as a separate federal agency responsible for coordinating national hazard mitigation and recovery efforts. In March 2003 FEMA became part of the newly formed Department of Homeland Security under the Office of Emergency Preparedness and Response.

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The National Flood Insurance Program (NFIP) is managed by FEMA and contains three components: flood insurance, floodplain management and flood hazard mapping. Participation in the NFIP is determined by whether the community adopts and enforces floodplain management ordinances in exchange for the protection of federal flood insurance availability to its citizens. For more information, visit their web site at www.fema.gov/business/nfip

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Yes, the mandatory purchase requirements, including the requirement for a flood zone determination, apply equally to condominium and commercial properties as they do to residential properties.

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The steps, as outlined by FEMA, to make the flood zone determination are as follows: (1) Find the correct flood map, (2) Find the general location of the subject property, (3) Find the specific location of the subject property’s improvements on the flood map, and (4) Identify the flood insurance risk zone as shown on the flood map.

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Call Customer Service at 800.648.9605.

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We send a letter when we have not received evidence of insurance coverage from your insurance agent or insurance company. If you have this information, please mail copies to Option One’s Insurance Department at P.O. Box 949, Orange, CA 92856 or fax a copy to 949.465.7265. You may also have your insurance agent contact the Insurance Department on your behalf at 800.278.9939. Option One requires that you maintain adequate insurance coverage on the property as described in your Note and Mortgage. If it is determined that there is no current insurance coverage for the property, a policy will be purchased by Option One. You will be responsible for paying the premium for this coverage.

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Claim checks up to $5,000 will be endorsed by Option One without a copy of the original claim. Checks over $5,000 will be placed in a Replacement Reserve Account and payments made as the repairs are verified. For additional information write to our Insurance Department at P.O. Box 949, Orange, CA 92856 or call 800.278.9939.

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If you have an escrow account and your insurance has been cancelled, please contact us at 800.648.9605. If you do not have an escrow account, and your policy has been cancelled, you must renew your policy or acquire insurance through another company, and provide the new policy information to our Insurance Department at P.O. Box 57054, Irvine, CA 92619-7054 or fax to 949.465.7265. Please remember to write your Option One account number on the bill or letter.