Although the headline seems ridiculous, it has never been more on point than in the current mortgage market. I have said to anyone who will listen that the 1% loan cannot have any traction left to it, but my amazement keeps growing as fast as the demand for this loan.
There is even a nationally advertised attorney who is threatening a class action suit against lenders who "push" this loan, and the lenders still keep coming up with new angles. At some point, you would thinkg that either I would learn something or the borrowers would learn something, and yet it seems neither of us can get a grip on this phenomena.
First and foremost, this is not a new loan. It has been around for at least several decades.
It has gained popularity as many mortgage advertisers tell you such things as "it's the biggest no brainer in the world" or "just because the mortgage payment doesn't go toward your principal, it doesn't mean your house won't appreciate". Huh! Can anyone say non- sequitor? Wouldn't you think someone might regulate the advertising we are forced to endure. Maybe we could have a group of M.D.'s report that children that are not yet in high school could revert toward childhood if subjected to this drivel.
What am I talking about you ask? I'm speaking of the option arm. Most people would refer to it as the 1% interest rate loan, but that wouldn't be correct. It is the 1% payment rate loan, and that is where the problem arises. If you watch old movies, or the Sopranos, you realize that when you borrowed money in the past, you had to make your payments, generally interest, on time or face some physical hardships. Well, that concept is the antithesis of that loan. Not only do you not have to make any principal payments, you don't even have to make most of the interest payments either. HOW SWEET IS THAT! If 1% is too high, we now have a payment of $20 per $100,000 or $200 per $1million. If the 1% loan is a "no brainer", I can't even begin to guess what this one will be called.
Roger Schlesinger's Mortgage Minute is heard on hundreds of radio stations and daily on the Hugh Hewitt radio show and Michael Medved shows. Roger interacts with his hosts and explores the complicated financial markets in order to enlighten his listeners and direct them along their own unique road to financial freedom.
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