Question 1:
Fred, I listened to your show and thought it was great and informative. I had a question regarding my payment options on my new condo. I have three options: a minimum payment of $1511; an interest-only payment of $2474; a amortized payment of $2890. I’ve been paying the minimum while trying to pay off some debt. I’ve successfully paid off all my debt and now am trying to decide between the interest only and the amortized options. I’m not a big investor in the stock market so I’m wondering if it makes more sense to make the larger payment or to make the smaller payment and use the extra $400/mo to build towards another down payment for some rental property. Please advise on what the differences are between the 2 payments. Thanks! Paul S.
ANSWER: First of all, it sure sounds like you have the “4 ways to pay” Option ARM. So before I answer this question, you must read this carefully. I wrote an article about this option arm loan. I call that loan “The Worst Loan in America” and the sad thing is, is that, to this very day, Mortgage Companies are still pushing and selling this loan program. Be careful of the prepayment penalty, read the loan docs carefully. They may tell you no pre-pay, read the note, the adjustable rate rider & see if you are signing a Pre-payment penalty rider or not. I recommend reading this article on our website under Free Articles/Reports. I wrote that article 3 years ago when those loans were very popular. I have heavily bashed this loan for nearly 2 years on the radio. There was another company on our same Radio Station promoting this loan heavily, well she is no longer on our station.
However, there are many others still pushing this loan with large call centers & telephone solicitors bothering you at home.
It is now “trendy” to talk about 30 year fixed mortgages and getting into the correct loan program. I have been saying that since the day I got into this business. This problem also happened in the early to mid 90’s. I have seen this all before. However, this time around, it is much worse.
The problem with people who have gotten into this loan is that they have been paying the minimum payment, so their loan balance has increased & now the lending guidelines don’t allow us to get higher (LTV’s) loan to values with stated income loans. That is what most people are qualifying for these days. On top of all that, property values have declined. This is the problem we are seeing each & every day. We are having to tell these people, time to do a short sale, or how about a lease with an option to buy or an AITD (All Inclusive Trust Deed – a potentially risky option), or a Forbearance Agreement with the lender while the property is listed for sale. With rates coming down, housing prices should stabilize. But now people need to come up with a larger down payments (depending on the price range) for stated income to buy a home & that is why the housing market has pretty much come to a “stand-still.” A screeching halt! I believe it is a great time to buy!
This is why you are seeing some of your friends in your neighborhood lose their homes. And it is all because of the bad loan advice/choice(s) they made or they were “sold” on. For example, the 5/1 ARM’s are adjusting up from 5-6% up to 8-11.5% (depending on their credit situation at the time they took out the loan). People just can’t afford going from an Interest only payment, going up 2-3% or higher in rate, & now having to pay Principal & Interest, amortized over 25 years instead of 30 years.
The mortgage business is a $10 Trillion business. In the next 12 months, there will be over 1.4 Trillion (14% of the entire mortgage loans in the United States) adjusting. We have found 50% of the people who call us, can afford the “new adjusted” payment if their loan was to adjust today & 50% can’t.
Paul, if you can not afford payment option #3 of $2,890, then I say get out of that adjustable ASAP and into a 30 year fixed right away. If you can not afford the payment on the 30 year fixed, then get a HELOC (home equity line of credit) on your home & use that line of credit to help make that payment on your 1st mortgage. Then, unfortunately, you need to realize that you need to put a “For Sale” sign on that property which is probably not what you wanted to hear. In addition, this is not the time of year to sell or is the market favorable. Lower interest rates may help us here, but you don’t want to rely on that. If you want someone to tell you what you want to hear, then I am not the guy to talk to. But, if you want to hear the truth, then keep reading!
Call me or one of our consultants to discuss your own scenario. To send your questions or comments with a 24-to-48-hour-turnaround, go to www.sfmdirect.com and click on “Ask Fred.” or “Ask Lisa.” Your questions may benefit others who may not know direct answers. This in turn helps us educate others.
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Questions 2: Is it still a good time to buy? For a FREE Good Faith Estimate Review call us at 800-811-7709.
Answer: Yes, I think it is a great time to buy. The 4th quarter is the best time of year to purchase. Not too many people are looking for property during the holidays. In fact, rates are the lowest level they have been in over 2 years on the 10 yr Treasury which affects the 30 year fixed rate loans – 1.25% from all-time record lows of June of 2003. See the chart on our website!
When we write an offer, I have more negotiating power on your behalf. Please, whatever you do, DO NOT talk to the listing agent at all. I can call & get any question you have answered. If you do, I lose my negotiating power. This is just my strong, strong recommendation for you to accomplish your goal of getting a home you like, 10-20% below the recent comps.
Call me or one of our consultants to discuss your own scenario. To send your questions or comments with a 24-to-48-hour-turnaround, go to www.sfmdirect.com and click on “Ask Fred.” or “Ask Lisa.” Your questions may benefit others who may not know direct answers. This in turn helps us educate and build our books and publications for you.
We are at 2 year lows on the 10 yr Treasury as of 11-14-07 & 1.25% away from all-time record lows from June of 2003. Folks, take advantage of these low rates & do yourself a favor, please do not pay closing costs if you do refinance today. Because if and when rates do drop, you can refi to the lower rate for absolutely zero costs. Don’t let further changes in our lending industry or declining property values affect whether you qualify or not for a mortgage, when rates do drop. Take a look at this 2 year chart on the 10 year Treasury. We are so low right now – take advantage of this! Call us at 800-811-7709 today.
Learn how to access your home equity. With our home equity lines of credit for no points, no fees and no closing costs, you can pay for home improvements, consolidate debt, school tuition, a needed vacation or to pay for anything else.
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