[WashingtonSource]

ARMs are riskier, but the real problems come from Interest Only ARMs and Option ARMs, which allow for negative amortization.

[Fan of Fiat]

Why is an interest only ARM riskier than a standard ARM?

[riverdawg]

"... the real problems come from Interest Only ARMs and Option ARMs, which allow for negative amortization."

I don't see how an interest-only ARM, by itself, leads to negative amortization. True, you're not building equity through your monthly payment. But if one's concern is *falling* housing prices, in such an environment the "equity-payment" component of a conventionally amortized loan is lost anyway ("thrown into a fire," as a colleague of mine likes to say). With an interest-only mortgage in a declining market, you simply have to think of the interest payments plus the fall in value as the total cost of the service flow your dwelling provides.