Darryl Baskin, Real Estate Broker The Baskin Real Estate Specialists of McGraw Davisson Stewart recently posed a question to Jeff Sargent, Vice President of Pinnacle Mortgage/ONB bank asking about adjustable rate mortgages and the impact they are having on people, for better or worse. Jeff Sargent told Darryl that the ARM (adjustable rate mortgage) products can be good if buyers are only intending to keep the mortgage for a short and specific time period, as the rates can be as much as 1% lower than the fixed rate mortgage products, which are presently at 6.25% for a 30 year term. However, if consumers want to stay in a home and mortgage for anything over 3 to 5 years, they definitely need to look for a fixed rate mortgage because the only adjustments to payments each month would be due to increasing real estate taxes or insurance. Many people have become entangled in their adjustable rate mortgages and were not clear on how the contract really worked. There are different types of ARMs; some adjust after 1 year, others after 3, 5 or 7 years, but most of them have the potential to go up by as much as 6% during the life of the loan at different intervals. Many have pre-payment penalties for specific periods of time and some can be converted to a fixed rate mortgage after a specific date, but many borrowers do not read the documents they are signing and are later shocked to find out what kind of mortgage they really have. If we look back in history, fixed rate mortgages were as high as 17% in 1984 and adjustable rates at that time were 15%. The 2nd mortgage rates during that time were often as high as 21 to 29%. Consumers had no options as there were not so many loan products as we have today. By 1986, the adjustable rate mortgages had adjusted and being able to make the payments became impossible for many, and home prices had begun to decrease. Those that could refinance did, and those that could sell their homes also did but there were many that could do neither and they were forced to file bankruptcy and many lost their homes to foreclosure. Bankers became wary of the bubble envelopes they began receiving each day, as there were probably house keys in them along with a note advising that the client could not longer afford the home and that they could not sell it either. "Those were tough times and I hope we never see all of that again" remarked Jeff Sargent of Pinnacle Mortgage. If you have been watching the news lately, you will see that many of the sub-prime lenders are going out of business because of defaults, bankruptcies and foreclosures. Jeff's opinion is that many people were preyed upon by greedy lenders and were not fully aware of what kind of loans they had taken out to purchase homes. If you plan on staying in a house for more than a few years, consider a good old fashioned fixed rate loan and compare lenders and be fully informed when choosing a mortgage lender.
There was a report a couple of weeks ago that said Tulsa was the number two real estate market in the U.S. for price appreciation. Darryl and Jeff have been talking about the stability of the Tulsa MSA for some time, and it turns out they were right. This area does not rise and fall quickly since the oil bust of the eighties, as most companies and industry diversified. That is not to say that the recent crude price increases have not helped our local economy, as many area businesses still support the oil industry. There are many areas in our country that are now feeling the negative impact of the over inflated real estate markets and the problems brought about by sub-prime, high risk mortgages. Hopefully we will continue to see stable growth in our area as we've seen for the past decade. The plans for growth in Tulsa and the surrounding area are phenomenal and it will only enhance the great lifestyle that can be enjoyed in our wonderful "neck of the woods."
For more information about this topic or other mortgage related questions, please contact mortgage expert Jeff Sargent of Pinnacle Mortgage Corp/a division of ONB bank @ 918.481.6833 or jsargent@pinnaclemortgage.com.
