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My Bank Wants to Give Me An ARM - I Guess They Want A Leg!

another image stolen via google This is amazing with all that's gone on within the mortgage industry. I was just going through some mail that I'd put aside and there was a letter in there from a lender on one of my rental properties. They wanted to offer to lower my monthly payment a little over $300. The rate was going from 7.375% to a 6.746% APR. OK, so what's the catch. Well it appears that the actual rate is 5.875% and they wanted 1.605% points. Right here I'm going to myself - OK, so they're charging points looking to make some quick cash. Everyone knows that points are just upfront interest. So then I turn over the letter and look at the other side. This is what it says:

This loan is an adjustable-rate mortgage which carries a fixed rate of interest for 10 years, and does NOT have negative amortization. (Well that's a good thing at least.) Interest-only payment is for the first 10 years of the loan term. After the first 10 years, the payment will become fully amortized, paying both principal and interest for the remaining term. The payment will adjust annually starting with the 11th year.

At least they added the following:

Paying interest only will not reduce the outstanding balance of your loan and will increase the overall cost of the loan. Your payment will increase substantially at the 11th year.

Now the sad part is that many people will go for this because all they are looking at is the monthly payment. Someone wrote in one of their posts that people are stupid. I like to think better of people, but must admit that they are generally greedy. Many will not even consider the consequences. Many will not even read or care what the loan is about - just that they've reduced their monthly payment - albeit temporarily, but what the hey!

Till next time - Marc It Sold!

Posted by Marc Grossman, GRI - Greater Orlando Real Estate Broker on 11/25/2007 02:53 PM

Comments (17)

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Originally posted at: Central Florida Real Estate Blog: My Bank Wants to Give Me An ARM - I Guess They Want A Leg!

17 Comments on My Bank Wants to Give Me An ARM - I Guess They Want A Leg!

NOV

2007

I must be the only one who likes an ARM loan these days. I've had two ARMS and two fixed mortgages and truthfully, I can't stay anywhere long enough to make the fixed mortgage worth it. On my last place, I had a 3/6, but I knew when I was signing the papers it was time to leave anyway. Of course, I didn't wait until the last minute to sell and I priced it to move.

Sincerely;
Jonathan Osman
The Charlotte House Hunter
Charlotte NC Homes, Charlotte Real Estate

I hate it when I get all those teasers too, the ones about refinancing with no closing costs. Yea, right.

I have never stayed in a house for ten years or even 5 years. Getting a lower payment for that length of time makes some sense to me.

Marc -Mortgage is debt like any other debt. Consumers need to think not only about immediate costs but their long term plans - are they going to stay for the term of the fixed part, are they about to be promoted, inherit or win a lottery:). It all effects the final decision.

The cartoons are great.

Jonathan & Matt - the term is not the point, you are building no freakin' equity. Guys, this is a part of the problem that created the situation we are presently in.

Missy - Don't you just love that. Sure, here let me give you something for nothing. It ain't happening - we're paying for it somewhere. They're just hiding it and not explicitly telling you where.

Marc...

"Here's Your Sign" (CLICK CLICK)

Marc it flippin' funny :)

TLW...ROAR!

TLW - Too freakin' cool!! Thank you!

NOV

2007

Marc, This is a great loan first off. With or without the points.(If you are thinking short term) The letter that this company sent you gave full disclosures so at least you know you are dealing with a reputable company. If you are thinking less then 5 years an I/O is a great option because know matter what anyone tells you if you look at an amortization schedule you don't pay much off at all. One of the advantages if you want to build equity that an I/O loan offers is the ability of lowering your payments each month. If you chose to pay more than the I/O payment the difference goes directly towards the principal and therefore next months payment will be lowered. You are only paying the interest on last months balance.

Faina - Thanks & I agree with you.

Matthew - I partially agree with you. Those buying for the short-term this might be a decent loan. But again, they are building absolutely no equity. Yes, I understand how an amortization schedule works. But you are working on the assumption that when it is time to sell, the property will appreciate enough to cover all costs. Here's a thought, maybe they should purchase a home of lesser value that is within their affordability range. I apologize if this appears that I am attacking you and/or mortgage brokers. I am actually a licensed mortgage broker as well. But that is not the case and I greatly appreciate your input and expertise.

Marc:

Today, you're my favorite blogger! Thanks for this post.

Mike in Tucson

Mike - Thank you so much for that compliment. That's quite kind of you.

NOV

2007

Good Post Marc. Loans like this have the "chance" to be great, but also have the "chance" to be terrible. I would be willing to bet this would hurt more people than help them....especially today.

Marc,

Mortgage payment is important and so is the interest rate. Many borrowers focus too much on these aspects, though, instead of looking first to get the right type of loan for their particular situation. That is key.

NOV

2007

Hi Marc,
Love the title of this blog. Truth presented in an entertaining format, what more can we want? So many people are barely making ends meet and will latch onto anything that will help bring immediate relief. Hopefully, this post and more like it will help open people's eyes.

Congratulations Marc! You're the next link in the Active Rain Chain of terrific writers! I knew Andrew wouldn't disappoint us and he certainly didn't!! I've gone back several posts to read you and will be subscribing right about NOW!!!!

Looking forward to your post and your selection!!!

Marc - AHHH the fine print....Sure does pay to look that over doesn't it! You are right people get too caught up in just looking atthe payment and not paying attention to all the terms. Love the cartoons :)

Curt - That's the whole thing, just like these 'money merge accounts,' etc. Yes, they may be all right for some people, but for the majority - NO!

Esko - That's why it is important for the public to rely on Mortgage Professionals, such as yourself, as well as Realtors that will guide them in the correct direction for their particular needs as opposed to just selling the product!

Cynthia - Thank you very much and we can only hope so, because the alternative is not a pretty picture. Yet, that's the problem with desperation...

Jennifer - Thank you very kindly and must admit that you were the one person so far that I was not subscibed to. But once I checked out your blog, I did the same as well.

Bill - Glad you enjoy the 'toons. So true, but I also firmly believe that it is our responsibility to oversee that our clients are choosing the correct product when they are purchasing as well. We may not be mortgage brokers, but we should be knowledgable about such.

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