Since when did having options become a bad thing? Aren’t options part of becoming a responsible adult? As a child you have options; eat your vegetables or you won't get dessert; do as you’re told or get a size 6.5 sling-back across your bum. Becoming a teen affords more choices; although the choices of adolescence have changed somewhat from when I was a teenager. Never do I recall, tattoos and piercings on my carte du jour; none the less – options.
Over the past decade the media has become a smorgasbord of doom and gloom especially when it comes to this monstrous bubble that has been rumored to implode and swallow anyone in a pay option arm – never to be seen again! Recently I asked members of a mortgage clinic what they thought of the pay option adjustable rate mortgage, commonly referred to as “pick-a-payment”. Yikes! It’s true, opinions are like noses – EVERYBODY has one.
One I’d like to emphasize is that the pay option is especially risky; or as one proboscis pointed out, “bad, very bad.” The general nature of the pay option is to allow the borrower to have different options to choose from, a minimum payment, which has deferred interest; a low payment that is interest only; and two fully amortized payments, one at 30 years and the other 15. What’s wrong with having options?
The greatest risk that I can see with this product is that the interest rate is only fixed for 3, 5, 7 or 10 years. I don’t care what anyone says, interest rates are still low. Come on people! Unless you refinanced into a 5.5%, 30 year fixed rate a few years ago, you either have been paying 8% or, are going to have to refinance at some point and have a bump in your rate. Stop crying and see it for what it is, a mini vacation from an 8% to 9.5% mortgage loan. The problem is for the individuals who have been paying the minimum payment option - that was only one of your options; if you chose to pay the least amount every month for the past 12 to 24 months that is the consequence that you unfortunately have to deal with.
The opinion is that the dirty real estate agent and their sinister mortgage counterpart are the ones responsible for creating this tsunami of negative amortization; all the while the consumer, charging gasoline to fill their leased BMW’s and Mercedes buries their head after crying out, they screwed me! Well, with options comes responsibility. It amazes me how many individuals will impulsively make choices without considering the outcome. We as a society ignore reason to satisfy our addiction to instant gratification.
To rap this up, there are plenty of loans to choose - from the 30 and 40-year loans; hybrid ARMs to the plain-vanilla 30-year fixed-rate mortgages our grandparents were so keen on. Despite the negative press, I prefer options; having a commission-based income; my life isn’t fixed and a fixed rate hasn’t been appealing to me until recently. There is a new fixed rate product out with options! I can have the comfort and security of my grandfather’s loan with the option to pay one of four payments, cool. I’ll keep my options, thank you very much.
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