To put it bluntly, the so-called Option ARM stinks, in the opinion of National Wholesale Mortgage.

Many mortgage banks have no problem pushing this product.  After all, anyone who went to business school knows that a publicly held company has one responsibility:  Increase the value of its stock for its shareholders, period.  Do you hear that mortgage borrowers?  Banks are not your friends.  They are not your buddies.

You see the ads on television:  "You can get a $300,000 loan for $750 per month!" (or something equally as ridiculous)  Remember the old adage:  If it sounds too good to be true, it probably is.

Yes, you can get a $300K Option ARM mortgage loan for $750 per month...  Sort of.  These "Option ARM" loans advertise interest rates as low as "1.75%, fixed for 5 years!"

This is very deceitful.  In reality, your interest rate adjusts and is closer to 7% each month.  Oh sure, you still make the 1.75% interest payment, but the other 5% or so is tacked right back onto your mortgage- in other words, it eats your equity over time- and quickly! 

So...let's say you buy a house with 10% down and home values stagnate as they are doing right now, almost all over the country.

Your home doesn't go up in value, you make the minimum payment of 1.75% and you find that in 3 years, you've gone in-the-hole by 15%.  There goes your 10% down payment!  Plus, if you were to sell now- you actually would owe 5% on that $300,000 home.

That's $15,000!

And we haven't even discussed fixing it up for sale or paying 6% more in Realtor commissions!  You could be out well over $30,000 when you sell.  This is when people tend to foreclose.  (Not recommended.)

Of course, we still have clients who insist upon an Option ARM.  And, of course, because we are in the business of making our clients happy, we have to give it to them.  However, I think...scratch that- I know that we can all do better in this business if we treat our clients as we would be treated and guide them into the loan that is best for them, rather than the loan that offers us the largest commission.  In the long run, all of the people that we save from the "Option ARM" will come back to thank us and, of course, use us again and again.