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A Gypsy, A Crystal Ball and Arm or fixed loans

A home buyer goes to the state fair and he is have a wonderful time as he comes across the Gypsy Lady and her Crystal Ball. Mr. Homebuyer has a brilliant idea, instead of calling a mortgage professional he will seek his answers with the Gypsy Lady and her magical Crystal Ball. He enters the tent filled with all sorts and mystical things and pays his 20 bucks to ask his question. "What do you want to know?" ask the Gypsy Lady, Fame? Fortune? Love? No says Mr. Homebuyer...... tell me what type of mortgage I should get. The Gypsy Lady frowns, predicting your love life would be easier and more fun. But Mr. Homebuyer insists, so Gypsy Lady sighs and rubs her crystal ball..........

First she says is the Option Arm, the gamblers loan. This loan is fill with peril with the teaser rate and the stupid low payment and then after it starts to adjust your payments can more than double. With this loan you are betting that the value of the home will not drop and that the crazy real estate market will continue to rise. If it doesn't and all you do is make this low payment you are adding the rest of what you should be paying to the balance and if the prices drop you might owe more than your home is worth. If you take this loan you must be diligent and at least make the 30 year Interest Only payment. Be very careful when dancing with this loan. Mr Homebuyer is impressed with that teaser payment and thinks how much more home he can buy and stops listening to Gypsy Lady about the pitfalls of this loan.

Second she says are the ARM loans. These are good if you are looking to save a few dollars every month, BUT these loans have risk. The initial payment is fixed for a period of time 3 years, 5 years up to 10 years and after that time frame the payment will go up. This loan is good if you are only going to be in the home for that time frame. But these loans can be tricky, many come with a pre payment penalty and if you sell before that time frame is up it can cost you lots of money.

Third and lastly the Gypsy Lady says to Mr. Homebuyer is the Fixed Rate. This loan is so boring. It never does anything. It doesn't go up. It wont go down. It just sits on the couch watching TV and eating. Where is the excitement in that.

Mr. Homebuyer is confused. So he ask Gypsy lady what he should do....... Call a professional she says, but I paid you he exclaims! What type of loan do you have???? Well she says to him, " I don't have a loan, see they wont lend to me because my home is the mobile wagon and the wheels are still attached. But that is for another 20 bucks and another blog time.

Posted by Joe Adams on 07/23/2007 05:22 PM

Comments (15)

mortgage, fixed, arm

Post is included in group: Carnival of Content - Loan Officers/Mortgage Lenders

15 Comments on A Gypsy, A Crystal Ball and Arm or fixed loans

JUL

2007

where can I get a cyrstal ball to predict the mortgage future? So many people want the answers this would for sure put me at the top of my game!

JUL

2007

Leo, I have one in is black and has , what a minute it is a Magic 8 Ball. No wonder the answer is always hazy.............LOL

Joe, I thought you were describing me there for a minute instead of a Loan Program "It just sits on the couch watching TV and eating" ............ LOL

Very well done I enjoyed reading it.

JUL

2007

The rating thing is broken right now, but I would have given you a "5"!

Excellent post! What many people don't know is that I actually met this gypsy lady. Yep, it's true! I was at a mortgage broker's license exam and she was there in line, waiting to get in to take her test! :-)

Bob Mitchell

ValueList Real Estate Services, Inc.

George, nah the couch thing is me on football sunday (LOL)

Bob, thanks I hate when the thingy is broken, Did the gypsy lady pass the exam?

JUL

2007

Joe, Funny post. I did a post about people asking everyone else but their mortgage professional so I agree. Good luck in the contest

Well done! Great way to describe it!

Joe... this was an easy read. I waited till the end to hear what the gypsy lady was going to say. I think you gave a good idea in regards to what each did. But one thing that I think you were stuck on was the fact if values continue to go down, you will be hurt. That has just been this year and this year only. That is just my opinion. You need to take history into account, which I do with every client and every loan. Yes, you are right, we don't have crystal balls. But we do have history. Keeping in mind, just like the stock market. Goals, you need to wait certain things out for them to be very beneficial.

Again, this is just my opinion, but look at history. For the most part, the average would be 3% appreciation, which can usually offset the pay option arm, especially if you handled it correctly. But the story line was cute.

jeff belonger

Hi, Joe, Good review, and very entertaining, of a tough subject. Keep up the humor and good writing.

Matthew, Thanks and Ditto to you

Rey Thanks

Jeff It was intentional I think we as a profession sometimes shy away from "negatives", but you are correct the average appreciation of 3% per year is a great safe guard and to be honest most people didnt and dont handle the option arm well

Bill Thanks

JUL

2007

Joe...I liked the storyline, even if I disagree with some comments. The overall presentation was an easy read and the storyline was superb. Excellent writing skills.

That being said, focusing only on the negative side of ARMs is not treating them fairly. Just like everything else, as Jeff B. touched on, interst rates go in cycles and we are currently in a up cycle (bad news for ARMs). But to tell someone to run to a fixed rate (not that you did) is not the best thing either and simply shows a "follow the herd" mentaility.

I would suggest, looking at history and its tendency to repeat itself, that ARMs may actually be adjusting downward years down the road, instead of the upward adjustments everyone is focused on.

Sorry Robert, I allowed the gypsy lady to be negative because TOO MANY LOAN OFFICERS wont present the negative as I said above yes the trend and history are positive , but all anyone hears is the low payment. I taught scuba class this weekend and all any one hear for one exercise is that their air would be turned off, they stopped listening that the fact that once they felt the difference they would have it restored. People DON"T listen but YOU MUST present negative and positive. The scuba exercise will be treated in a blog on monday so Please no comments on turning off the air.

JUL

2007

Wonderful storyline Joe! You bring up some very relevant facets of lending. My favorite though was your ending...."I don't have a loan, see they wont lend to me because my home is the mobile wagon and the wheels are still attached. But that is for another 20 bucks and another blog time." I so know what you are talking about there. How about I slip you a 20 and you write the blog.

LOL thanks Jason, I will look for the 20, actually I have the idea roughed out and since I sold "mobil wagons for 15 years" it might be interesting

Joe, very creative post, nice dose of humor!

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