Some information about certain real estate lending options.
Under the Bush/Cheney Administration, Option ARMs were first originated. In 2010 it is expected that option ARMs worth more than $100 billion will go bad. So many borrowers were either seduced into the flexible terms and arrangements of Option arms, or voluntarily took out those loans. Why Option arms in the first place. With an Option arm, the borrow can do different things during the term of the mortgage loan agreement. Borrower can change from one kind of adjustable mortgage to another, or to an interest only loan, or can change to a fixed rate loan.
With an Option arm, borrowers were able get into a home with almost nothing down. They used the interest only option, which meant just that, they only had to pay monthly on the interest, not principle, and they had low interest rate to pay on, so it was super cheap to get into a home and mortgage payments were super cheap. Borrowers just wanted their dream of home ownership to come true, and why not? The financing was there, and they simply took advantage of a good thing. However, the load became unbearable. These borrowers did not read the details of the mortgage contract. A mortgage contract is written in legal language that most do not understand or care to understand. However, without reading all the information, all the clauses, borrowers get stuck, they get into something they regret down the road, or are not aware of changes to their mortgage contract. A contract by nature is a serious instrument, binding, and not flexible or negotiable once signed.
Its serious nature should cause one to pause and real every sentence with comprehension, but few do this in reality. Few can make it through each lengthy section of the real estate forms, since people are just too busy in their work lives, busy lives, that seem to never end. The better alternative, is do what the older generation has done, and that is take out the simpler to understand, fixed rate mortgage. Sure, it is not always the least expensive way to get into a home, and many would be barred from home ownership, but this approach would cause the would-be borrowers to save money for the down payment, closing costs, and the money needed to cover the first couple months' mortgage payments.
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