I have a client who is trying to get into the market - they qualify for either of these loans? What are the pro's and con's?
I have a conservative nature and I always think that fixed is best - especially now that the market is turning and the interst rates are low, but can any of you agents or brokers sell me, in a simple way, why a neg am or a 5 year interest only loan might be better so I can sell my clients?
I've been in the mortgage business for 10 years, but here are some reasons I would suggest a 5 year I/o.
#1 based on NAR stat's, the average home owners buys or sells a new home every 5-7 years. These numbers maybe dated, it may even be more frequent.
#2 Most long term amoritized loans front end the interest on the loans. In other words your clients pay very little principal anyway, and most of the payments go to interest on a 30 year, 40 year, or 50 year loan.
#3 Interest only loans are not scary if the client understands why and how to manage the loan. You really should have your client talk to an experienced Mortgage Planner or Loan Officer.
#4 Negative Am loans have their place, but you need to make sure you client is not on a fixed income, or is using the Neg Am loan to qualify for a home that is beyond their ability to pay. Find out what your client qualifies for based on a 30 year fixed I/O and keep the purchase price in that range. If they don't qualify then find a home they can buy.
#5 If you have a client who can be approved with "Full Doc" Income, please don't have the mortgage broker talk you into having the guy qualify for a stated loan,( so the buyer can buy a bigger home) It's not worth it, and states and the fed's are cracking down on Mis-stated loans!
Hope that helps
Agree with Karl here, but the bankers would love it if you played it safe and went for a 50 year they would make soooooo much more money off your customer so if you want to make the bank happy go for the 50 year fixed if you are looking to save your customer and they can handle the 5 year I/O that would be my selection.
Good afternoon Catherine,
The first comments from Karl are very true and I agree with everything he said. I would probably recommend a 7 year interest only. Right now for example, Countrywide has better rates on the 7 year when compared to the 5 or even the 10. Just a suggestion. Good luck with your clients.
Thanks everybody - you have given me some great tools to talk about with my clients -
Catherine
Catherine...I am not sure if I am a little later here..... Karl breaks it down to a "T".... and my advice is if they are looking for the low payment and don't do a fixed loan, do the "cofi" "MTA" or "COSI" loan. Not busting on Nima, but why do a 5 or 7 yr loan, even an interest only now? Those terms are not that far off from a 30 yr fixed. Your best value in rate then is going to be the cheapest payment with lowest rate. The reason being is that your client is still going to be protected per year on this type of loan. Just an FYI....
jbelonger@e-americanmortgage.com
Thanks,
jeff
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