Rule of thumb -- when the bank calls...

Over the past 8 years of being in this business, I've noticed a peculiar trend with sales calls from my banks and mortgage lenders.

When your bank calls you each month and tries to sell you on converting your ARM to a fixed mortgage, chances are you've got a pretty good deal with the ARM....

When the bank calls you each month, and tries to sell you on converting your FIXED mortgaged into an ARM, and take some cash out -- chances are you're doing really well with your fixed.

I guess my rule of thumb is that you should always do the exact opposite of what the bank wants you to do, and generally you'll be ok It continues to shock me how blatant these people can be.

I just got off the phone with one, trying to sell me on converting my ARMs to fixed. They seemed shocked when I responded, "Why would I want to do that? I'm predicting that rates will keep easing ror the next 6-12 months atleast... I'm in a great position right now with my arms!"

Oh well... I guess they've got to scam money from their customers somehow

- Hakrjak

With the foreclosure market where its at, and ARM's getting such a bad rep; almost any order taker can get on the phone with people in an ARM and get an application.

You my friend are exceptional, because you are not afraid of your ARM. Of course, you probably know how to follow your index and margin, caps on rate increases etc.... The average consumer just thinks ARM is bad, must get fixed, and away they go wherever the lender takes them.

I cant sell an ARM to the average customer to save my life right now. I have situations where the lowest fixed rate is 5.125 (with discount points), and the same closing costs will get someone a 5 year ARM at 3.5%! These people will tell you that they are not going to be in the loan forever, but they still wont take the savings of the ARM due to the what if factor.

Thats a lot of extra interest to pay for the "security" of a fixed rate loan.

I understand their concerns... Especially if they live in a place like California where people got into ARMs, thinking they could just refi in a few years if they didn't end up selling out -- and then found out that they lost so much value that they can not refi, and now they're losing their homes because of the rate pop....

But if you are planning a short term rent & flip strategy, or you're planning to stay somewhere for a couple of years -- and you're in a good stable market like Colorado (For example.. where I'm at! haha) -- then there is no reason to be afraid of a 5 yr ARM. Especially if it can save you a point or 2 on rate.

One concern I've had lately is that closing costs are going up, so I don't want to refi ever if I can help it on new properties I aquire. If it's something I might hold for 5-10 years, and If I can help it, and it's within 1% or so -- I will usually opt for the 30 yr fixed vs. the 5 yr ARM, just in case.

Cheers,

- Hakrjak