There

Picture is just for effect.

Really are only three types of loans, no matter what anyone says. No, they aren't conforming, government and non conforming. That would be a good guess, but wrong. Of the three types of loans, not everyone is right for each type and at the same time, everyone may not be right for the type of loan they have.

So, if I have your interest, what are the three types?

1. Those that the balance goes down with each payment, amortizing.
2. Those that the balance stays the same with each payment, interest only.
3. Those that the balance increases with each payment, negative amortizing.

Yes, I know that type 2 and especially type 3 loans have gotten a lot of bad press, but in reality, each one has a purpose. An amortizing loan is not right for everyone all of the time. As a matter of fact, a good case can be made that it is probably not right for most of the people most of the time. However, it is the loan most often given by a broker/banker and taken by the borrower.

When is an interest only loan good for the borrower? Almost anytime they would like to use the additional amount they would be paying in principal each month for investment in their future. Does this mean they should use it to buy a TV or a boat, that is not what I am saying. Liability management and wealth building can happen with as little as the amount that would be going to principal each month. That amount is not going to help the property increase in value each month, and a savings, be it stocks or bonds or the like, can help during a time of financial crisis when you can't tap the equity in your home.

The same can be said for the negative am product. Is it for everyone, definitely not. However, for the commission sales person or someone that receives a bonus 1 or 2 times a year, it could be ideal. Are you aware that the reverse mortgage being sold to seniors right now are negative am loans? And, for a percentage of the population, they are the ideal solution.

All of this leads me to the point of this posting. That is that every client is different and if you don't take the time to find out what they need and then offer that to them, you really are doing them a disservice. A professional loan officer, consultant, planner, or whatever you may call yourself must be prepared with all three types of loans. Don't make all of your clients fit in to your round hole when they are actually a trapezoid.