Arm Loans or Harm Loans

Don Kohler and Matt McKillen wanted to share this informative article with the neighbors of Roser Park. (Sorry for the bit of delay, Don and Matt. :)) So here you are.

As everyone is almost certainly aware, mortgage markets in the United States are in severe turmoil this year. All types of media, TV, financial reports and news commentaries, are talking about the mortgage crisis triggered by the Subprime Mortgage meltdown. Many of our larger nationwide mortgage banking institutions have been closing their doors due to liquidity issues in funding new loans or being unable to sell the loans on the secondary market, which is how they normally continue to fund their operations. There is a non-profit website that is tracking the mortgage lending crisis called www.lenderimplode.com. As of the date of this article, 149 lenders this year alone have shut down operations, plus there is a list of ailing financial institutions that are being closely watched.

Loans that are primarily involved in the turmoil are short term fixed adjustable rate loans. These types of loans are usually fixed with a teaser rate for 2, 3, and 5 yr periods then convert to either a 6 month arm or a monthly changing arm. Upon conversion, some homeowners are seeing as much as 2-3% increases from their initial lower fixed teaser rates. For example, if a borrower had an initial rate of 5.75% that converted to a fully indexed rate at 7.50 % on a $275,000 dollar loan, the payment would increase from $1604 P&I (principle and interest) to $1,922 P&I. After the initial conversion, the homeowner is subject to periodic rate increases that can be monthly, bi-annually, or once a year for the remaining term of the loan. Throw in rising home-owner insurance costs, the re-assessment of property taxes, and you can see the potential financial impact these conditions can cause on a families budget.

Bear in mind, not all ARM’s are bad loans. They serve a purpose in the right situations. If a family knows the home is an interim living situation for a few years, or will be selling later down the road to downsize etc., the ARM loan is a good solution. Interest only loans have also been popular products for a home-owner that is trying to maximize monthly cash flow, knowing they can pay extra every month to principle if they desire. Fannie Mae is now offering a 30 yr fixed that allows for interest only for the first 10 yrs. This product basically gives you the best of both worlds. Long term fixed stability, plus the convenience of interest only to maximize cash flow for the first 10 yrs.

With the present change in market conditions, the rising of interest rates, and the tightening of credit guidelines, even for borrowers with perfect credit histories, everyone that has an ARM loan has to consider the short and long term consequences of their existing financing. At Preferred Mortgage (we are a direct lender), we specialize in providing an in-depth mortgage analysis of a homeowner’s existing loan based upon short and long-term plans for the property. If you are interested in this free service, I invite you to call Don Kohler or Matt McKillen at our office # 727 388-9874, and allow us to advise you on what options are available to solve your short term and long term financing needs.

Matthew McKillen and Don Kohler of Preferred Mortgage Services have over 20 yrs experience in residential lending. Preferred Mortgage offers 1st and 2nd mortgages for refinancing and purchasing of properties from 1-4 units. We are pleased to offer a special for all Roser Park residents that do business with us, a free appraisal refunded at closing.

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