Some time back, a bunch of Mortgage Professionals here on Active Rain participated in a contest in which the question posed was, "Which is better, A Fixed Rate or an Adjustable Rate." I had cited a term I had learned awhile back called the Sleep Principle. Simply put, whatever program you decide is best for your situation, it's a good idea that you are comfortable enough with that decision to lay your head against the pillow and sleep peacefully each night.
It is vital to understand the features associated with this or any loan program you choose, and that it meets your unique financial needs. Ask questions, ask a ton of them. Let a Mortgage Professional guide & educate you as to the pros and cons of any loan program.
Some of the advantages of ARMs are the following:
- Get approved for larger loan amounts (Be certain of a few factors here, including how long you will be in the home, affordability down the road if the rate adjusts, etc)
- Lower Monthly Payments (Again, this makes sense if you purchase a home for you and your family and plan on being there only a short period of time. It also makes sense many times for Real Estate Investors to increase overall cash flow with reduced monthly payments. In either case, make sure you have an Exit Strategy (way out) to make sure any adjustment won't cripple you financially in any way.)
- Payment options that adapt to your needs. (Some folks have income that varies throughout the year ... more in some months & seasons than others. These folks can benefit from a loan tailored to their specific situation and needs.)
- Flexibility for First Time Homebuyers. (Education passed on from your Mortgage Professional to you is crucial to make sure this is a good fit.)
- This can pose better options for Savvy Real Estate Investors. (As mentioned above, a lower monthly payment can increase cash flow. In turn, this money can be utilized to invest in other projects or investments to diversify your Financial Portfolio.)
For all your Pennsylvania Mortgage Needs, I'm a phone call or email away. Also, below are some other niche products we have available to fit a wide range of Mortgage Needs.
Jason Sardi
Mortgage Consultant
First Choice Equity Group Inc.
610-439-2166 ext. 229
jsardi@fcegi.com
http://activerain.com/blogs/shears76
Wow, you are gutsy! I guess as long as buyers understand all of the long-term ramifications, which I'm sure you discuss in detail, these loans truly have the same pro's that they have always had. People just need to work with the right lender/broker!
I agree with you, Jason! ARMS are the perfect solution for certain situations. Knowledgeable mortgage brokers can explain why if you are the buyer who is in that "certain situation". Option Arms, for certain situations only can be of great use too - Please make sure that the client becomes knowledgeable, though!
I agree with you, Jason! ARMS are the perfect solution for certain situations. Knowledgeable mortgage brokers can explain why if you are the buyer who is in that "certain situation". Option Arms, for certain situations only can be of great use too - Please make sure that the client becomes knowledgeable, though!
Jason, I think people also need to know how high the rates can go, and the time frames and caps (do ARM's still even have caps?). This means they need to feel totally comfortable asking "stupid" questions!
Diane - In my opinion, the majority of folks are better off with fixed rates ... they just are. But for certain situations & individuals, ARMs are the better way to go.
Joan - You are absolutely right in your situation. And making sure the client becomes knowledgeable is a big part of what we do. Thanks for stopping by.
Patricia - Yes, I agree. I think they should (and it's already starting to happen) be qualified from a Debt Ratio standpoint off the first adjustment. ARM's do have caps, most I see have caps of 6%.
Jason,
This is very good, but may I take issue, politely? Please?
"Get approved for larger loan amounts
(Be certain of a few factors here, including how long you will be in the home, affordability down the road if the rate adjusts, etc)"Nothing involving the future is certain or factual, except death and taxes!
"Lower Monthly Payments
(Again, this makes sense if you purchase a home for you and your family and plan on being there only a short period of time. It also makes sense many times for Real Estate Investors to increase overall cash flow with reduced monthly payments. In either case, make sure you have an Exit Strategy (way out) to make sure any adjustment won't cripple you financially in any way.)"John T Reed, the greatest real estate writer, I know of, advises that you've got to teach an exit strategy, so you're in good company. But, you're wrong! No one born after WW-II could have imagined the current crises, no one born before could understand it. Leveraged real estate is not like paying cash for stock, where you can simply tell your broker, sell if the price drops! We should be teaching a worst case holding strategy! A plan for survival and recovery!
"Payment options that adapt to your needs. (Some folks have income that varies throughout the year ... more in some months & seasons than others. These folks can benefit from a loan tailored to their specific situation and needs.)"
The most naive, the least sophisticated among us, need options, need flexibility, at the time they finance a home, at the time they are benefitting from your professional guidance, not when alone with their check book the first of each month.
ARM's have a great history, every one loves a lower payment (Of course Consumers forget the benafits when the payments go up!) These are very great tools!
Interest only loans make sense for some.
Negative amortization loans have great value to a small market, but not the general home buyer.
Fully amortizing loan remain the loan of choice.
Few "First Time Home Buyers" have the personal discipline to make the full payment each (any) month, and based upon the current crisis neither do many buyers.
"Flexibility for First Time Homebuyers. (Education passed on from your Mortgage Professional to you is crucial to make sure this is a good fit.)"
"This can pose better options for Savvy Real Estate Investors .
You say "Savvy" I say "sophisticated," "lets call the whole thing off" I'd have added "Disciplined!" Provide these consumers with an "interest only" loan, even those with "pre-payment penalties" accept principle reductions of up to 20% each year. Charging a premium for privileges that came with a true "interest only" loan is sinful. Charging a home buyer the same thing should be a crime!If by "payment options" you're referring to the "option ARM's" I know of no more insidious, no more vial, no more evil program ever legally offered to the naive consumers. This program charged a premium to offer the consumer option they neither understood or had the discipline to succeed with. This ticking time bomb, offered everyone the tools normally only used by the financially sophisticated.
I don't believe we disagree. May my whole prolben is the use of the words "option" and "ARM" in close proximity.
Bill
Jason,
Obviously i'm not an expert in your field but from my own experience...i would fee l more comfortable with a fxed rate loan. I do think those ARM's have some good deals but you have to be more of the safisticated customer with knowledge how they would work in their advantage. They can be dangerous if you don't manage them right but also could be a good thing by using OPM.
Jason, This is a great post and I just flagged it for a feature. I really agree with your this statement
"Ask questions, ask a ton of them. Let a Mortgage Professional guide & educate you as to the pros and cons of any loan program."
Jason, good job jumping in to the turbulent waters of ARM's. If I read you right, an ARM is for a very specific need and before someone signs on the dotted line they really need to know what they are getting. I think that is great advice. One thing you can't do is protect someone from themselves. ;o)
Bill - Wowsers, you must of graduated from the Jeff Belonger school of commenting:-) I think we are in agreeance here, maybe the issue is the choice of wording.
"We should be teaching a worst case holding strategy! A plan for survival and recovery!" I agree fully, to me that is one of the viable things that one must consider along the way.
"Sophisticated rather than Savvy" Ok, I'll give you that.
"If by "payment options" you're referring to the "option ARM's" I know of no more insidious, no more vial, no more evil program ever legally offered to the naive consumers. This program charged a premium to offer the consumer option they neither understood or had the discipline to succeed with. This ticking time bomb, offered everyone the tools normally only used by the financially sophisticated." How many 'Mortgage Professionals' even knew what this one was about? I agree with ya ... I can't think of many in my Database who would truly benefit or understand this product. I've done 1 in 7 years ... that's it. I'm not a huge fan or advocate of this product for at least 97% of folks out there.
Neal - I've said it before, for most ... I'm an advocate of the Fixed Rate. So, I understand where you are coming from there.
Matthew - Wow man, thanks. Clients should never be afraid to ask questions. Actually, the more questions they ask ... the smarter I think they really are.
Greg - Yup, you read me right:-)
Jason,
Nice consumer readable post! Different stokes for different folks...instead of just vanilla and chocolate, Baskin Robbins has over 30 flavors...people like choice...that's what you said, right???
Thanks, Fran
Hey Jason - I like 'quips and tips'! And I like the advice of 'ask questions, ask a ton of them'
Ann
I'm with Ann and Matthew - terrific advice! It's obvious why clients gravitate to you: you give them permission, no... you encourage them to become educated and to consider ALL options. My very first home loan was an ARM and it allowed me to purchase the perfect house when the market favored buyers, but before I had the money I knew was coming to me. It was the perfect fit and I am still thankful it was available to me.
Isn't that your job? Pairing the right program to the client? ARM's wouldn't have a bad rap if all lenders did their job correctly.
(Have I told you what a wonderful writer you are lately?? :-)) MWA!!
There is a lot of good info here Jason! I agree with Neal that I couldn't sleep at night without a fixed rate, but I think there are many people that can benefit from an adjustable rate with the right mortgage person (Jason Sardi, Jason Sardi).
ARMs are vilified, but they are a great tool for the right buyer and situation. Like any tool, they can be abused, and they are often attractive to abuse. But, just like using a plasma cutter to trim nails is not a great idea, using an ARM for a long term property isn't a good idea...
Jason,
When I was a LO with GMAC Mortgage I put my daughter and Son in law into a FHA 1 yr. ARM...best move they ever made...this was when rates were descending from 9% around 1993-4...they avoided at least 2 refis as a result...they thank me regularly!!! Thanks, Fran
P.S. The FHA products are outstanding...ask Belonger!
Jason my boy... I sit here with a frown on my face because I am tired and now one full day behind. I had planned to work on your two clients from 10 pm to midnight. But I got an e-mail from a past client who told me her friend's mom didn't go to closing... from a loan officer that works at Wells... see post later, AT AR news live at 2 am... well, I made the mistake of telling her to tell her friend to call me up until 10 pm or 11 pm. I get a call at 9:46 pm tonight and I got off the phone with her at 12:51 am. Now I am having scotch and a cigar. ;o)
So.... I see that Mr. Bill, even though wise in his years, has approach many mortgage related blogs as you stated..... "you must of graduated from the Jeff Belonger school of commenting"
Not sure if that is a compliment and not that I want to seem like I am bashing my fellow loan officers... but I will agree with Bill on some of this....
First off.... this is a great topic and you put together some good advice. And I won't use the word "holes"... but I do see some light. ;o) Seriously... you hit the nail on the head.. asking questions... and plenty of them. But... if you are working with a superior loan officer, most of your questions should be answered before you as a consumer, even get a chance to ask them.
<scotch and cigar break>
back... I also disagree with the exit plan. Not only should you have an exit plan, but you should have a planned failed exit plan. Meaning... what happens if my exit plan fails or can't work... as a loan officer, it would be my duty to show you 3 to 5 years beyond your goals and or plans. If you tell me that your goal is to move out by 3 years and you want to do a 3 yr arm? I show you a 3 yr arm, a 5 yr arm, and the worst case scenarios for 2 to 3 years after each adjustment. When I did a 1 yr arm or a pay option arm, I showed the consumer the next 5 to 6 yrs no matter what, worse case. Then, no matter what they decided, at least in my mind, I did my job. It also helps me discredit that other loan officer if the consumer is comparing rates on the same program. Sir, did the other loan officer show you all of this? 99% of the time, the answer is... no, they didn't.
In any case.... there were a few other things. My point? You went beyond what most loan officers would point out or ask.... but I think we need to go a step further in our worst case scenarios.... I need to get back to my scotch and cigar now.... and maybe think about sleep..... talk to you soon... nice job.
PS... to Frans comment, since I just read his and have only read Bills... yes, FHA products are great, but as of today, I would not put anyone in a 1 yr FHA loan. The spread is not great enough,especially when rates are already low. I only put people in FHA 1 yr arms and 2/1 buydowns when rates were 7.5% or higher... or the psread was great than 1 1/2 %...... just my .02..... 3 weeks ago, a 5/1 arm was about 7/8% better than a 30 yr fixed and on a 400k loan, this might have made sense, depending on the consumers goals.
Gentlemen,
I have no idea weather I've been insulted by one or both of you.
I had thought Jason's remark a strange complement. Truthfully very strange.
Regarding exit strategies, most people have them they will tell you if ask. "How do you plan to exit this investment?" "I intend to sell high!" But, what happens if they can't sell? I don't believe in loans where you can't live with the worst case scenario. Pain is survivable (I know!) I believe in amortizing loans not euthanasia!
I didn't think either Jason or I bashed anyone, but many readng this should feel guilty, as they say "If the shoe fits...!"
Bill
Jason - This really is a great post! Yes, ARMs can be scary and intimidating but for certain people and situations they are the right avenue. Your words are golden - ASK QUESTIONS - ASK A TON OF THEM!
Fran - Yup, but choice can also be fattening ...
Ann - Lol, thanks! It was a tad difficult to think of a quasi-creative title for this.
Jennifer - What else can I say my dear, MWA!
Susan - I totally understand Neal's and your position ... I think most are of the same line of thinking.
Lane - Sounds like you have a solid understanding of this.
Fran - For some people, yes they are Fran.
Jeff - It was a compliment amigo:-)
"Not only should you have an exit plan, but you should have a planned failed exit plan. Meaning... what happens if my exit plan fails or can't work... as a loan officer, it would be my duty to show you 3 to 5 years beyond your goals and or plans." Absolutely, perhaps I should of went beyond 'Quips & Tips' and into more detail but I do agree. With changing products and parameters, sometimes daily, what may be an exit plan today may be gone tomorrow. Part of any plan is to look at worst case scearios too ... and how to deal with an abundance of possible situations as they arise. A good plan takes both the short-term and long-term into consideration, along with the client's current & 'possible' future financial situation and needs ... and then throws into that equation their own goals & dreams for themselves and/or their family. It's like one big sociological mathematical equation! Or something like that:-) It's our job to make it simple, educational, & best for their particular situation.
Jeff - Good point.
Bill - Shoot, there goes the Mortgage Professional Battle Royale I had hoped for:-) Seriously though, I always appreciate your wise words and valuable input. Thank you!
Leesa - So Leesa, do you have any questions?:-)
Now now...I sense a squabble amongst the pros:)
The vehicle isn't to blame, it's the consumer's misuse of it that causes problems. Just like running up your credit card, not putting money away for retirement, or throwing thousands of dollars away on the slots.
Educated consumers who live within their means and can manage the "worse case" scenario will be able to utilize the ARMs sucessfully in certain circumstances.
Neal - That's exactly why I have YOU as my tag team partner;-)
Heather - You make some valid points, yet the vehicle wasn't understood by those selling it in some cases as well. The bottom line, a cliche if you will, knowledge is power.
Jason, these other Realtors are weenies for fearing adjustable rate loans. They fit where they fit, you just have to have a solid plan to convert to the fixed if you overextend your stay in a 5/1 or 7/1 ARM. You actually SAVE money on ARMs if you don't plan to stay in the home a long time. Some REALTORS just aren't good in math.
Jason,
If I get into a "Battle Royal" it won't be with Belonger! Jeff's intentions are good, his clients come out winners. We'll keep teasing him and one of these days he'll go from "good guy" to "all around good guy!" There is only so much you can say about LO's about like you and Jeff who put their client's best interest first.
Bill
Readers: I'll bet neither one argues with me.
Gary - True that to an extent. It isn't hard to fear that which one doesn't know. It's our job (us Mortgage Folks) to ensure one DOES know. Education is sooooo much part of the process. I'll harp on that until I die and then beyond.
Bill - (Thinking of an argument;-)
Bill.... hhhhmmm you said... "Readers: I'll bet neither one argues with me." - Okay, let's argue.... I would say that the 1928 Yankees weren't the best team in baseball. Go ahead, bring it on. ;o)
Jeff,
Nice try!
I didn't know there was baseball in 1928.
I know it's not PC, but I don't argue about subjects I know nothing about.
Thnk about it have you ever seen me dispute the spelling of anything other tham my last name?
Bill
Quit hijacking my blog you point mongers:-)
So who is the greatest baseball team of all-time Jeff?
Bill - One of the more expensive baseball cards is a 1909 Honus Wagner (shortstop for the Pittsburgh Pirates at the time). If one of us got our hands on that, we could sell it and open up our own Mortgage Company. Please let me Belonger's Manager ... Please!
Jason,
I'm shocked!
To manage Belonger is either the first choice of a lazy man or a masochist. I suspect the Jeff doesn't need or accepts much management.
I'm guessing, but most great salesman are prima donnas. You don't fence them in, you let them know where the boundaries are. You don't herd them, you let them know where you want to go. Younger prima donnas don't require a manager but rather a keeper.
Bill
Great post Jason. The media has demonized ARMs to the point that most people glare and hiss if you mention the idea. The truth is that most Americans don't live in a property for more than 7 years, let alone 30, so why pay a higher rate?
I think that most of the issues that folks are having are with Sub-Prime 2/28s, which are a different beast than what you are discussing. Too bad most people only hear ARM.
Great post. If people work with a good loan officer who looks out for their best interest, they need not worry. But now the word ARM scares people. I personally like the FHA arms .
Bill - I get the point ... I guess I need a keeper:-)
Kevin - The media has demonized a lot of things, as have we. Frankly, I think Sub-Prime Loan Products got a tad bit of a bad rap and much more recognition than it deserved for some of the problems going on. ARM isn't a bad word or product, the implementation of such an entity and why is what we have to watch ...
Gita - I'll bang the education drum all day long. It's to the point where folks need to know that they not only have to find those working for their best interests, but who don't sugarcoat the truth of things. I don't always deliver the best news on the block, it doesn't mean it's not damn true though.
Jason, it is the thing to do, i.e. to "bang the education drum all day long". People can find any type of information on the web, but they need someone to explain to them what it means, or in other words: "education".
Jason,
A short gardener, maybe?
Bill
Surprised Jeff didn't mention the obvious.. only reason for me to comment...
FHA's only have a 1 percent per year cap. 4% over the life of the deal. Great reason to rock those ARMs with FHA!!!
Great info for the public!
It is vital to understand the features associated with this or any loan program you choose, and that it meets your unique financial needs. Ask questions, ask a ton of them
Great info above. My first question is are you licensed???
It is vital to understand the features associated with this or any loan program you choose, and that it meets your unique financial needs. Ask questions, ask a ton of them
Great info above. My first question is are you licensed???
Yes we are Michelle. Apparently, the one owner was late in renewing the license, just received it today. Thank you for your concern:-)
Yes we are Michelle. Apparently, the one owner was late in renewing the license, just received it today. Thank you for your concern:-)
Thanks Eleanor!
Bill - ....with a green thumb:-)
Wow. Some people really amaze me.
Well thanks for clearing that up. You may want to ask him too why the website states the company is a member of the BBB when in fact they have an unsatisfactory record.
Above All Financial Services - Who may want to ask me, you? Wow, you seem very interested in me for some reason. If there is an unsatisfactory showing on the BBB, I'm unaware of it. As far as our website, hasn't been updated for quite some time. I do all my online marketing from AR, Zillow, Trulia, referrals from Michelle Chamberlain:-) I will contact whomever did the work on our site and ask them to take that down. Sound good to you? I can't wait until I run for politics, you'll be all over my keister:-)
Jennifer - You and me both.
I'm trying to decide whether this "Above All Financial Services" is really more like "Below the Belt"!
Either this person is envious of your track record or having a very bad day because disparaging other members - especially those we directly compete with - is just ugly. Something those of us who have been here on AR for awhile know better than to ever do.
You're handling this with a lot of grace Jason. I admire you so much!!
I have to agree with Jennifer. This is not a forum to attack other members, even if I think fixed rates are the way to go....LOL.
My hats off to Jason for not deleting their comments and keeping a cool head.
Jennifer - Comes with the territory to some extent ...
Bob - Pssst, I'm with ya. For the majority of folks ... fixed rates are the way to go.
Just a clarification. I have nothing against Jason and my intention was not to attack "him". He seems like a nice guy and I enjoy his posts. I thought the post regarding people being 'mortgage poor" was particularly informative because he demonstrated that mortgage brokers are capable of doing other calculations (like figuring out affordability) than just $550,000 loan x 1.5 points on the front and 2 points on the back = nice fat commission check for me.
I do however have something against other mortgage brokers in my state operating without a license and ignoring consumer complaints. This makes all brokers look bad. If I really wanted to be "below the belt" I would have contacted the BBB myself and let them know that the company was saying it was a member when it was not and the PA Dept of banking to notify them that the company was operating without a license. This would have resulted in fines and/ or licenses being revoked permanently. Instead, I pointed it out and it appears the issue has been resolved. I wonder what would have happened if I had not brought this to anyone's attention?
Again, I understand that it is not Jason's company so my issue wasn't really with him. I even suggested he might be better off getting his own broker license since he seems to work so hard at bringing in his own business only to have split it with someone else.
Above All Financial Services - Give it a rest already, it was resolved before you pointed it out. Your motives are quite obvious here and you are starting to walk a fine line. I probably should just delete your comment but I'll leave it for all to see. Tell ya what, do us both a favor and move on. I really don't feel like getting into banter with you, it takes away from the very cause we should be fighting for ... helping consumers. Other than that, have a pleasant weekend.
Thanks Jason! You too.