My Bank Wants to Give Me An ARM - I Guess They Want A Leg!

My Bank Wants to Give Me An ARM - I Guess They Want A Leg!

This is amazing with all that's gone on within the mortgage industry.  I was just going through some mail that I'd put aside and there was a letter in there from a lender on one of my rental properties.  They wanted to offer to lower my monthly payment a little over $300.  The rate was going from 7.375% to a 6.746% APR.  OK, so what's the catch.  Well it appears that the actual rate is 5.875% and they wanted 1.605% points.  Right here I'm going to myself - OK, so they're charging points looking to make some quick cash.  Everyone knows that points are just upfront interest.  So then I turn over the letter and look at the other side.  This is what it says:

This loan is an adjustable-rate mortgage which carries a fixed rate of interest for 10 years, and does NOT have negative amortization.  (Well that's a good thing at least.)  Interest-only payment is for the first 10 years of the loan term.  After the first 10 years, the payment will become fully amortized, paying both principal and interest for the remaining term.  The payment will adjust annually starting with the 11th year. 

At least they added the following:

Paying interest only will not reduce the outstanding balance of your loan and will increase the overall cost of the loan.  Your payment will increase substantially at the 11th year.

Now the sad part is that many people will go for this because all they are looking at is the monthly payment.  Someone wrote in one of their posts that people are stupid.  I like to think better of people, but must admit that they are generally greedy.  Many will not even consider the consequences.  Many will not even read or care what the loan is about - just that they've reduced their monthly payment - albeit temporarily, but what the hey! 

Till next time - Marc It Sold!