For years most borrowers who own houses have rejected the idea of learning all there is to know about the mortgage market; at least in my opinion. I speak with dozens of borrowers on a daily basis, year after year, and their knowledge of the tools available to them and the programs that could make a huge difference is definitely lacking. It is akin to playing baseball for the first time and going to bat without any idea of what could be thrown at you: fast ball, curve, slider, change up, etc. Worse than that, once you hit the ball you are not sure where to go. Are things really that bad? Perhaps not, but even if they are half that bad, it is too much. People need to know what is going on and how to protect their assets and limit their liabilities.
How many people do you think really understood the "option ARM"? According to those I speak with who now are facing problems because their loan balances are increasing due to the negative amortization while the values of their properties are declining: not many, if any at all. Besides, like many other borrowers, they got caught in a sub-prime loan. (Only one company out of 10 to 15 sub-prime lenders that I know offered the "option arm".) It is finally time to stop making excuses and learn what you need to know when you borrow and when you borrower more than you can afford to repay.
There is a lender that will guarantee you a fixed loan under "prime" that has excited everyone I have talked with until I tell them that the "prime rate" is currently 8.25% (now 7.75%). And no, the Federal Reserve doesn't regulate the "prime rate". Influence, yes; regulate, no.
An ARM (adjustable rate mortgage) is not necessarily a bad loan. In fact, jumbo ARMs that are fixed for 5, 7 or 10 years are currently the best instruments available in that market.
I hear from borrowers daily who wish to dump their ARMs, or certainly won't take one because they want a fixed mortgage. If they really understood the mortgage choices, they wouldn't be making those comments.
Before I start explaining I must discuss the willingness of people to suspend their belief system to take a home equity line in the 8% range (give or take 1/2 percent or more) to pay off a 1st mortgage loan in the 6% or low 7% range because of a "formula" that has been discovered. How could that possibly work? And in as much as you need great cash flow to make it work why not skip the HELOC and just pay off your mortgage? Think about the obvious!
No two borrowers are the same, have the same qualifications or the same goals.
Stop listening to your friends and family and start learning! An "option ARM" gives you 4 ways to pay your mortgage. Three have too high an interest rate in most cases, and the fourth one can really get you in trouble unless you are in a low interest rate environment. Continued... |