When an ARM Isn’t What It Seems: $21,000 Surprise in My 10/30-Year Interest-Only Loan

Question

I recently discovered that the “10/30-year ARM” I enthusiastically signed was actually a 10-year interest-only loan—nothing I paid went toward principal for a full decade. After five months of $795/mo payments, my balance remains untouched, and I now face $21,000 in excess interest compared to a standard 30-year mortgage. The Term Sheet I signed never mentioned this IO feature in plain English, and my broker’s assurances were limited to “10-year ARM” jargon.

I’m seeking insights on:

• Disclosure best practices: How can lenders ensure borrowers truly understand ARM vs. interest-only?
• Remedies and recourse: What steps can a borrower take when industry terms are buried in fine print? I am looking for advice here. 
• Your experience and advice would be invaluable—both to correct my situation and to help raise the bar for transparency in ARM lending.

Disclosure best practices: How can lenders ensure borrowers truly understand ARM vs. interest-only?

Remedies and recourse: What steps can a borrower take when industry terms are buried in fine print? I am looking for advice here.

Your experience and advice would be invaluable—both to correct my situation and to help raise the bar for transparency in ARM lending.

See the agreed upon Term sheet below.

Please share what I can do.  Thanks Andrew

Patrick Roberts · Answer

This is no one's fault but your own. You failed to obtain clarity, you failed to read the term sheet, and you failed to double check the math and figures. The term sheet clearly shows this is an interest only program.

If you were buying a house for $200k and then got told to wire $400k to the closing attorney, would you blindly do so? Or would you question that? Youre paying less than $800/month on a loan of $127,000. This alone shouldve set off some alarms that something was off.

People like you are the reason we have out of control, excessive regulation and increased deadweight compliance costs that just make lending more expensive for everyone. Rather than accepting accountability for your own underperformance, your reaction is to come here and start preaching about how lenders should have to do more to protect idiots from themselves, which implies more regulation. How about a law that says would-be investors have to get licensed and pass a test before buying investment properties or getting investment loans. Then they would be prepared to read term sheets and do basic investment calculations and would prevent them from doing something they dont understand.

The reality is that all you have to do is take your loan terms and plug them into one of the million-plus online loan amortization calculators to tell you how much extra to pay towards principal each month in addition to the interest only payment. Then, magically, your loan will payoff in exactly 30 years in the fashion you expect with the amount of total interest you expect. Spoiler alert - your monthly payment will increase, and the total monthly payment will be exactly the same amount as if you had gotten an equal-payment, 30yr amortizing loan with a rate of 7.5% and a loan amount of $127,000.

People like you are why we have all of the RESPA/TRID/Dodd Frank garbage in the first place.

It also wouldnt surprise me if this is some clickbait spam post. The corpus of the post is clearly AI.

Brandon Croucier · Answer

I mean this is getting out of hand, can you read?

You cant get your cake and eat it too. If this is the number you budgeted, then great.

Most likely your broker offered you a 30 year fixed, PITI and you said "that payments too high" so he presented you with this and you agreed.

Optimum 10/1 IO ARM (10 Year IO Period)

States it pretty clear this is a 10/1 ARM with a 10 year Interest Only Period.

Russell Brazil · Answer

Fix the loan structure yourself. Pretend it was a fully amortized loan, and pay the amount to principle you would have been paying in that situation. Problem solved.

Patrick Roberts · Answer

There is nothing to resolve - the term sheet that you provided in the initial post shows this as an interest only loan. More importantly, the note, mortgage/DOT, and other documents you signed at closing will have spelled all of this out, regardless of what the term sheet said. Again, you didnt read the documents and understand what you were signing for, which is your own fault. You have no standing to push the lender to do anything.

Im also getting the feeling that you dont understand how an amortizing loan functions. If you put $127,000 and 7.52% into an amortization calculator for a 30yr mortgage, you will get a payment of $889.74 - this is what you need to pay each month for this loan to amortize. Even if the lender modded the loan, all this would do is increase your payment from $795 to $889. Your payment is not going to stay the same with a part of it now going to principal. The balance hasnt changed, and the rate hasnt changed, so the amount of interest wont change. Just pay $889 each month instead of $795 and your loan will amortize in the way that you expect.

Andrew Zee · Answer

Patrick, thanks for weighing in, but your take feels like you’re blaming me for breaking your window.

• The Term Sheet never said “interest-only.” It said “ARM.”
• My actual payment is $1,145/month (interest + escrow). That’s the number I budgeted.
• I’ve run the numbers: if I add $900/year toward principal, I’ll pay this off in 25 years, exactly as expected for a 30-year loan with that extra.

The Term Sheet never said “interest-only.” It said “ARM.”

My actual payment is $1,145/month (interest + escrow). That’s the number I budgeted.

I’ve run the numbers: if I add $900/year toward principal, I’ll pay this off in 25 years, exactly as expected for a 30-year loan with that extra.

The core issue is the lender didn’t disclose the IO feature on the Term Sheet. I’m looking for practical advice on how to resolve this—whether it’s pushing the lender to amend the structure or negotiating a modification—so I can get the loan I thought I was signing. Any thoughts?

Theresa Harris · Answer

If you look at what you posted, a few lines below where you crossed out a few things in red, it says loan program: optimum 10/1 IO ARM (10 Year IO period).

Andrew Zee · Answer

@Russell Brazil yup going to schedule an extra payments to get this thing paid off in 20 to 25 years or earlier.... IO = interest only ---YUK Not aware of IO in a term sheet. Now I know...

Thanks

Jeremy Horton · Answer

IO = interest only

A little self education goes a long way here. There is a baseline of self education you should complete prior to investing

Andrew Zee · Answer

@Patrick Roberts thanks for the explanation this helps.

When an ARM Isn’t What It Seems: $21,000 Surprise in My 10/30-Year Interest-Only Loan

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