The Freedom Loan is the most flexible mortgage product on the market, period. It gives you four payment options to choose from each month. You choose which one you are going to make. These flexible loans are well-suited to homeowners who have irregular incomes, such as salespeople on commission or investment bankers who earn a nominal salary and get most of their income in an annual bonus. When your income is low you can make a smaller payment and when your income is higher, you can make higher payments. Sophisticated borrowers can make minimum payments and invest the rest.
About two-thirds of homeowners get fixed-rate mortgages, paying a higher rate so the deep-pocket lender takes the risk. In his speech in 2004, Greenspan complained that a lot of those borrowers wasted money by spurning ARMs.
“American consumers might benefit if lenders provided greater mortgage-product alternatives to the traditional fixed-rate mortgage,” he said. “To the degree that households are driven by fears of payment shocks, but are willing to manage their own interest-rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home.”
Lenders were happy to hear Greenspan encouraging consumers to “manage their own interest-rate risks.” Mortgage companies began offering innovative ARMs, that previously had been pitched to the rich, to ordinary people . That includes option ARMs — adjustable-rate mortgages that let borrowers choose how much to pay each month.