Adjustable vs Fixed - ARM Wins in Reverse Mortgage World
A senior gentleman gave me a call yesterday. For 15 minutes I assessed his situation and told him definitively he should move forward only with an adjustable rate mortgage.
Now, I know the senior community's take on adjustable rate mortgages, so typically, when I come out and say, "an ARM is the right choice for you", I don't wait for a response. I simply go into my reasoning as soon as possible.
Why? Because I know the person is already objecting in their mind. It's already a bad deal. So, I get into why it is a good deal as fast as possible.
Well, this fellow beat me to the punch, which is hard to do when there might have be a millisecond for him to cut me off. When I attempted to explain why he simple grunted gruffly, "FIXED RATE".
I know when I'm right. This guy was letting his own rather uninformed opinions get in the way of logic. Without a doubt he could save thousands if not tens of thousands of dollars by listening to me. Not happening.
My would be customer refused to hear what I had to say, as if I was introducing a vampire into his home. Since you can't shut me up, perhaps you can read on and get a feel why the ARM is typically the better choice.
The reason is the adjustable rate mortgage is available as a line of credit. The fixed does not have this option.
Lenders qualify the senior to receive an available sum of cash equal to 50% to 75% of the home's value. Most only need a portion of this money. This makes the ARM and line of credit more viable.
The line of credit option gives the senior the right to draw out cash, use as needed, and leave the rest for later. At any time they can draw out more money.
This benefits the borrower's equity. Unused money in the line of credit has no negative affects on the borrower's equity. It's not accruing interesting eating away at the precious equity.
The fixed rate mortgage, on the other hand, forces the borrower to draw out money one time. Naturally, it will be a sizable number. Why do it otherwise.
Let's say my guy above, who wouldn't listen to me, owned his home free and clear (which he did). He also wanted to supplement his income. His is the most obvious example of someone who should go with an ARM. Going with a fixed would force the borrower to draw out a big sum and put it into some other investment while waiting to use it.
It does not compute. The rate charged for money pulled out would be greater than the return from the bank or CD. The best option is to go with the ARM and leave it the line of credit. On top of that the 15 year average interest rate on the ARM is lower than the current fixed rate.
Now, I know the senior community's take on adjustable rate mortgages, so typically, when I come out and say, "an ARM is the right choice for you", I don't wait for a response. I simply go into my reasoning as soon as possible.
Why? Because I know the person is already objecting in their mind. It's already a bad deal. So, I get into why it is a good deal as fast as possible.
Well, this fellow beat me to the punch, which is hard to do when there might have be a millisecond for him to cut me off. When I attempted to explain why he simple grunted gruffly, "FIXED RATE".
I know when I'm right. This guy was letting his own rather uninformed opinions get in the way of logic. Without a doubt he could save thousands if not tens of thousands of dollars by listening to me. Not happening.
My would be customer refused to hear what I had to say, as if I was introducing a vampire into his home. Since you can't shut me up, perhaps you can read on and get a feel why the ARM is typically the better choice.
The reason is the adjustable rate mortgage is available as a line of credit. The fixed does not have this option.
Lenders qualify the senior to receive an available sum of cash equal to 50% to 75% of the home's value. Most only need a portion of this money. This makes the ARM and line of credit more viable.
The line of credit option gives the senior the right to draw out cash, use as needed, and leave the rest for later. At any time they can draw out more money.
This benefits the borrower's equity. Unused money in the line of credit has no negative affects on the borrower's equity. It's not accruing interesting eating away at the precious equity.
The fixed rate mortgage, on the other hand, forces the borrower to draw out money one time. Naturally, it will be a sizable number. Why do it otherwise.
Let's say my guy above, who wouldn't listen to me, owned his home free and clear (which he did). He also wanted to supplement his income. His is the most obvious example of someone who should go with an ARM. Going with a fixed would force the borrower to draw out a big sum and put it into some other investment while waiting to use it.
It does not compute. The rate charged for money pulled out would be greater than the return from the bank or CD. The best option is to go with the ARM and leave it the line of credit. On top of that the 15 year average interest rate on the ARM is lower than the current fixed rate.
About the Author:
Make sure you get big mistakes and seven myths about the California reverse mortgage click me. A tremendous question and answer spot for the California reverse mortgage is at this little fella.
posted by Credit Counseling at
2:49 PM
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home