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Tuesday, December 30, 2008
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.
The adjustable already isn't in good standing with the general public. With a conservative group like seniors it's even worse. I better start making sense and quick-like.
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.
A borrower will qualify to get a certain amount of money based upon multiple criteria. Most don't need all of it at the time they close on the reverse mortgage. That makes the ARM appealing.
The ARM allows the borrower to pull out needed moneys and leave the remainder as a line of credit. The borrower can draw from the line of credit at the borrower's leisure.
This is great for the borrower because when the money is sitting in the borrower's line of credit it isn't accruing interest against the equity of the home. The fixed rate does not offer this deal.
Unlike the ARM, the fixed rate option allows only one draw of funds. So, the borrower better make it count. And interest starts accruing immediately on the entire sum.
The guy above owned his home outright and only needed supplemental income. It would be foolish for him to go with the fixed because he'd have to pull out a bunch of money, and put it into an investment or a bank.
The math is all wrong. The interest rate today on the fixed is greater than the return he'd get from a bank, CD and certainly the stock market at this point. The choice for most is the ARM. Work the numbers and discover why.
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.
The adjustable already isn't in good standing with the general public. With a conservative group like seniors it's even worse. I better start making sense and quick-like.
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.
A borrower will qualify to get a certain amount of money based upon multiple criteria. Most don't need all of it at the time they close on the reverse mortgage. That makes the ARM appealing.
The ARM allows the borrower to pull out needed moneys and leave the remainder as a line of credit. The borrower can draw from the line of credit at the borrower's leisure.
This is great for the borrower because when the money is sitting in the borrower's line of credit it isn't accruing interest against the equity of the home. The fixed rate does not offer this deal.
Unlike the ARM, the fixed rate option allows only one draw of funds. So, the borrower better make it count. And interest starts accruing immediately on the entire sum.
The guy above owned his home outright and only needed supplemental income. It would be foolish for him to go with the fixed because he'd have to pull out a bunch of money, and put it into an investment or a bank.
The math is all wrong. The interest rate today on the fixed is greater than the return he'd get from a bank, CD and certainly the stock market at this point. The choice for most is the ARM. Work the numbers and discover why.
About the Author:
To get big mistakes and seven myths about the California reverse mortgage make it to this site. A tremendous question and answer location about the California reverse mortgage is here.
posted by Credit Counseling at
3:21 PM
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