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Posted by Rainmaker on June 18, 2006, 11:40 pm
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>
>>
>>> These neg am/option ARM programs are great when rates are falling,
>>> stagnant or in a low interest/low volotility enviroment, but I would
>>> not recommend them for this interest rate enviroment to anyone Tom,
>>> Dick or Harry.
>>>
>>> All of these types of loans, regardless of who is underwriting it are
>>> based upon a 1 month ARM. While your minimum payment are preset for up
>>> to 5-10 years, the I/O, 15 YR FXD, 30 YR FXD, etc. are changing every
>>> month.
>>>
>>> As interest rates increase, so does the neg am accumulation and the
>>> likelihood for recasting.
>>>
>>> The fully indexed rate of most option ARMs are on par or slightly lower
>>> then what the 30 YR FXD is being offered.
>>>
>>> Most lenders/brokers like them because you can make big YSP on the back
>>> and still offer a rate between 1-2.99%.
>>>
>>> Regards,
>>>
>>> Scott Miller
>>> National Commercial and Residential Lender/Broker
>>> Carteret Mortgage
>>> 1.877.716.6495
>>> EZMortgageLoanz@aol.com
>>>
>>> www.RealEstate-IQ.com
>>> www.EZMortgageLoanz.com
>>>
>>
>> I have only done a few of them and each instance, they saved the home of
>> people in trouble. In easch case, the Borrower was recently divorced,
>> could no longer afford the home in which they were "awarded" and only
>> wnated to stay for just a couple more years until the children graduated
>> high school. They could not have been more thankfull.
>>
>
> You should encourage your customers to make the Interest Only payment at a
> minimum. The reason is that they do not continue to add to the mortgage
> balance. They don't pay it down (which is not a good thing), but at least
> they don't add to it (which is even worse).
>
> If the borrower has lots of equity, they can manage to make the Minimum
> Payment and consume some of the equity today at the expense of not getting
> it from the proceeds of sale that will eventually come along. But, if the
> borrower's equity is skinny when the loan is taken out, the minimum
> payment can be a real problem when the eventual sale finally comes around.
>
You should NOT encourage your borrowers to make the interest only payment.
You should encourage your borrowers to ONLY consider the minimum payment if
they want this loan. The interest rate changes every month; if they don't
see the benefits of the minimum payment, then we should consider another
loan. If they want I.O., there are other I.O. loans that are more
appropriate.
There are spread sheets available for this loan, that will show your
borrower where they will stand in 5-years (ask your wholesaler). Punch in
the loan parameters and ask the borrower what annual appreciation they are
confortable with; 5% annual appreciation will protect your equity in most
cases. If your market won't support that, then your borrower must have
other needs. sPs gave a perfect example of a divorce situation where the
borrower only wanted to stay for 5-years. The MTA ARM is ideal for that.
THIS LOAN IS NOT FOR SOMEONE WHO JUST WANTS THE LUXURY OF A LOW HOUSE
PAYMENT. There has to be other factors involved. Savvy money-manager types
will see the benefits of investing the difference between the minimum
payment and what a fixed-rate loan would offer. There are tax-free bonds
(for instance) that are yielding 7-9%, which equates to 10-13% AY. That's
pretty darned good, and almost free money when you consider that the client
is out of pocket the same amount every month.
Equity has no rate-of-return. The MTA ARM is the best tool to help your
clients free up their equity so that they may put it to work increasing
their wealth.
I hope eveyone had a great Father's Day.
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