The Index, some would say its the heart and soul of the Pay Option Arm. Some brokers say its better to use an Index that has gone historically lower than others. Some brokers havent a clue as to what the Index is, so they just choose the one that has the lowest interest rate at the time of the deal theyre making. Other brokers say if payment is all the rage about the POA, wouldnt it be better to use a lower index vs. a higher one? But it saddens me when I hear this because I know there really hasnt been any thought being put into this whole process and the borrower will be the one to take the burden of this lack of knowledge. Brokers that only think one dimentional when it comes to the Pay Option Arm are either 1)New to the business; or 2) Just dont get it when it comes the Pay-Option-Arm type products. I hate to be so direct, but sometimes I gotta hit you between the eyes. First, we have to agree with this statementgenerally speaking, people DO NOT refi/purchase because they want a lower interest rate, people refi/purchase because they want a lower payment. If were not together on that one, we may have challenges with each other. Its OK because everyone is different, but we can always be taught different things, right? If you want to be as professional and precise as possible, you have to inform your borrower of the good AND the bad of the lower indexes. And, believe it or not, if you truly got it, you know exactly what I mean. But, for those of you that still dont got it but dont want to admit it (trust me, that was me at one point as well), Ill go into a bit of further explanation here. In terms of indexes and ARMs, what rises must also fall. So, if one Index is lower than another, guess what, it will also be higher at some point, right? I dont want to state the obvious, but duh! So ask yourself this, if you think youre selling someone because youre giving them the lower index, how much referral or repeat business are you going to get when its the higher index? In other words, the lower the index, the less stable it actually is. It has lower lows and higher highs. Make sense? Let me explainno timelet me sum up [great line from the movie The Princess Bride], to be the best you can be, youll have to divulge both sides of the fence to the borrower. That being said, would the lower lows and higher highs be easier to sell if they were closer together? Translation: Less fluctuations going on? I would say it would, but there are cases for both the lower indexes and the higher indexes so make sure you do your homework and find out for yourself which your most comfortable with. AND, by default, explaining the indexes to the borrower will help overcome the objection of Im afraid of the interest rate rising too high. Ah, the joys of my jobmaking the not so obviousobvious! Andrew Poletto for more info, visit www.realmortgagetraining.com |
