In today's mortgage world there are more alternatives than ever. It really is important for your client's lender to learn and understand the client's financial circumstances and provide sage advise in choosing a loan program the meets both their short & longer term needs. It is not just about the best rate, most substantial lenders will all be very competitive in their rate structure. The more important matter will be the type of loan and how well it serves your client.

The recent trends in our area have favored loans that the borrower doesn't pay on principle for some period of time and in some cases even defers some of the interest to a later time frame. These so called interest only loans are a misnomer though because at some predetermined point principle must be repaid. The popular adjustable rate mortgages (ARMs) have been around for decades. They were prominently used by reasonably sophisticated investors that wanted to use more of their money on investments other than their mortgage that had the potential to show a greater return but now are used more in the context of borrowing more money to secure a higher priced home while keeping payments lower than traditional mortgages. In an Option ARM for instance you can choose to pay the interest only, or a combination of interest and principle. Excellent for those that have fluctuating incomes. The mortgages that permit no payment on the principle and less than full interest rate initially where this unpaid interest is added to the principle latter creates a negative amortization effect hence the name "neg-am" loans. For some these types of loans are perfect but there are some risks that should be recognized

In essence these loans mean you are buying more debt but are anticipating you can favorably leverage the property you purchased and that the rising value of that home and your income improving as well will afford you the ability to cover all of those future deferred cost. Most of the loans have a point at which the interest rate will increase to more current rates which at this juncture are rising and forecasters predict them to continue. So at a minimum you are likely to be dealing with higher interest rates. There is also a "market" risk too. Although the value of homes in general has risen steadily since the end of the great depression there can be local issues and market shifts that can add to the potential of housing prices flattening or worse declining and if you hold a mortgage where you owe more on it than the property is worth at the time you must sell the picture can get ugly. The combination of higher rates, deferred payments coming due and minimal equity growth can create a myriad of complex issues for certain clients even if they are not planning to sell their property. It is imperative we all should be alert and forth coming to help them understand any serious risks and the potential consequences.

Few people are looking at our local housing markets to have catastrophic down turn but it is important to understand both the upside and down side to each of the mortgage products a lender will advise your client to commit to. The right product to help our mutual clients to secure the home of their dreams and have a mortgage that serves them the best takes deep knowledge of the client's financial issues and plans for their property.