A better mortgage fit: fixed or adjustable?
Integrated calculators help you decide
By Jack Guttentag, Monday, January 2, 2012.
Inman News®
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In many, if not most, countries, borrowers are offered one type of
mortgage: Take it or leave it. Borrowers in the U.S., however, can
choose from a large menu of mortgage types designed to meet different
borrower and lender needs.
These include fixed-rate mortgages
(FRMs) with terms ranging from 10 to 40 years, and adjustable-rate
mortgages (ARMs) with 30-year terms but initial rate periods ranging
from one to 10 years. Many of these mortgages have an interest-only
payment option for the first five or 10 years. And all are offered with
multiple combinations of interest rate and lender fees. But having options is as much a curse as a blessing to borrowers
who have no idea of how to make a selection. Most focus on the
immediate financial burdens imposed by the mortgage, and give little
thought to the future.The loan originators (LOs) who borrowers
encounter in the process are seldom helpful because their time horizon
is even shorter than the borrower's.
They want the loan to close
so that they will get paid, and they fear that extended discussions of
different loan types and options will slow down the process, and
perhaps derail it altogether. Their impulse is to suggest the
loan type that the borrower might find acceptable, which may or may not
be the best. Many LOs are not qualified to counsel borrowers
effectively, even if they wanted to do so.
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