Good Evening,
I wanted to take a moment to share a letter I wrote to my local real estate partners yesterday, extolling the virtues of a often misunderstood product -- the 5/1 ARM.
...
Sales Leaders,
I wanted to take a moment to touch base with you again on the current mortgage rate environment. Friday's news of unemployment coming in better than expected (I'm not sure that 9.4% is really good news, but its all about perspective I suppose) coupled with continuing increases in gas prices and the recent rally in the stock markets, have made long term mortgage bonds fall out of favor with investors once again, despite the Federal Reserves decision to continue to buy, buy and buy some more on the bond market.
Two weeks ago, the rate on a 30 year fixed was as low as 4.75% (with 1% origination) as of Friday that had moved all the way up to 5.625% (with 1% origination). This is a $95+/month increase in payment on $175,000 loan in the matter of 10 days. So, you may be thinking, the first time home buyer client of mine waiting on the sidelines for rates to drop just got priced out of his/her home as the payment jumped too high for the loan to pass any longer.
Not so fast -- while the long term 30 year note has increased, there is a diamond still out there -- the 5/1 ARM. Okay, now before you dismiss this as another horror story of how we got into this mess in the first place, I think it would be good to understand more about this particular product.
Pricing: as low as 4.5% fixed for 30 years (1% origination applies)
Amortization: 30 Year principal and interest full payout (no balloon)
Cap: 2% max increase in year 6 and 2% max on anniversary once a year beyond that.
Lifetime cap: 5% above initial note rate
Now I realize this is not a product that would be for everyone, and probably many of your client's friends would be telling them not to get involved with something with such an uncertain future. But, consider this: How often do client's move? Usually in less than 5 years. How often do client's refinance? Again, statistics show in less than 5 years. So if you had a opportunity to help your client to have a guaranteed interest rate lower than the market for 5 years and an opportunity to make a significant dent in principal overall, it might be something worth mentioning to him or her as you consider writing the offer, especially with the understanding that within 5 years, circumstances will probably have changed.
Certainly, it is not your responsibility to discuss mortgage options -- that's my job, and as YOUR trusted mortgage advisor I would be happy to go through scenario after scenario with your clients showing the fixed 30 versus the opportunity in the 5/1 ARM. I just want to make sure you are aware of what else can utilized.
I want to leave you with one particularly telling example of what a difference thinking creatively can mean: take the 30 year payment and apply that payment monthly on the ARM and essentially pay what one was to pay on the 30 year fixed for the first five years. Care to take a guess at the difference in the unpaid principal at the end of 60 months when the 5 year ARM is set to adjust for the first time? On the 30 year fixed schedule, the unpaid balance is $161,824. On the 5/1 ARM schedule, paying the 30 year payment and putting the extra to principal, drops the unpaid principal balance all the way down to $150, 520. This is a difference of $11,304 on a $175,000 loan just for switching the loan type and paying the regular 30 year payment that is available at the 30 year rate, nothing additional at all.
So, while rates have indeed increased on the most popular mortgage option, there are still opportunities to close the deals and secure financing for your clients at very attractive rates. I hope that you have a great week ahead and please feel free to reach out to me, or have your clients reach out to me, with any particular questions that come up. This is still a huge opportunity and my hope is that you now have a better understanding of the great potential that still exists to help you close that elusive client and get that extra home sold this month. If there is ever anything that I can do for you, please let me know.
I wanted to take a moment to share a letter I wrote to my local real estate partners yesterday, extolling the virtues of a often misunderstood product -- the 5/1 ARM.
...
Sales Leaders,
I wanted to take a moment to touch base with you again on the current mortgage rate environment. Friday's news of unemployment coming in better than expected (I'm not sure that 9.4% is really good news, but its all about perspective I suppose) coupled with continuing increases in gas prices and the recent rally in the stock markets, have made long term mortgage bonds fall out of favor with investors once again, despite the Federal Reserves decision to continue to buy, buy and buy some more on the bond market.
Two weeks ago, the rate on a 30 year fixed was as low as 4.75% (with 1% origination) as of Friday that had moved all the way up to 5.625% (with 1% origination). This is a $95+/month increase in payment on $175,000 loan in the matter of 10 days. So, you may be thinking, the first time home buyer client of mine waiting on the sidelines for rates to drop just got priced out of his/her home as the payment jumped too high for the loan to pass any longer.
Not so fast -- while the long term 30 year note has increased, there is a diamond still out there -- the 5/1 ARM. Okay, now before you dismiss this as another horror story of how we got into this mess in the first place, I think it would be good to understand more about this particular product.
Pricing: as low as 4.5% fixed for 30 years (1% origination applies)
Amortization: 30 Year principal and interest full payout (no balloon)
Cap: 2% max increase in year 6 and 2% max on anniversary once a year beyond that.
Lifetime cap: 5% above initial note rate
Now I realize this is not a product that would be for everyone, and probably many of your client's friends would be telling them not to get involved with something with such an uncertain future. But, consider this: How often do client's move? Usually in less than 5 years. How often do client's refinance? Again, statistics show in less than 5 years. So if you had a opportunity to help your client to have a guaranteed interest rate lower than the market for 5 years and an opportunity to make a significant dent in principal overall, it might be something worth mentioning to him or her as you consider writing the offer, especially with the understanding that within 5 years, circumstances will probably have changed.
Certainly, it is not your responsibility to discuss mortgage options -- that's my job, and as YOUR trusted mortgage advisor I would be happy to go through scenario after scenario with your clients showing the fixed 30 versus the opportunity in the 5/1 ARM. I just want to make sure you are aware of what else can utilized.
I want to leave you with one particularly telling example of what a difference thinking creatively can mean: take the 30 year payment and apply that payment monthly on the ARM and essentially pay what one was to pay on the 30 year fixed for the first five years. Care to take a guess at the difference in the unpaid principal at the end of 60 months when the 5 year ARM is set to adjust for the first time? On the 30 year fixed schedule, the unpaid balance is $161,824. On the 5/1 ARM schedule, paying the 30 year payment and putting the extra to principal, drops the unpaid principal balance all the way down to $150, 520. This is a difference of $11,304 on a $175,000 loan just for switching the loan type and paying the regular 30 year payment that is available at the 30 year rate, nothing additional at all.
So, while rates have indeed increased on the most popular mortgage option, there are still opportunities to close the deals and secure financing for your clients at very attractive rates. I hope that you have a great week ahead and please feel free to reach out to me, or have your clients reach out to me, with any particular questions that come up. This is still a huge opportunity and my hope is that you now have a better understanding of the great potential that still exists to help you close that elusive client and get that extra home sold this month. If there is ever anything that I can do for you, please let me know.
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