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Casual Articles - The ARM Sales Pitch
Is there such a thing as cheap home insurance? There may be a better question. Is home insurance really that expensive? Homeowner’s insurance may very well be the consumer’s best buy when it comes to insurance. There are multiple benefits and features that make the home policy unique. Most everything that the homeowner owns including the dwelling can be covered in some way by homeowner’s insurance. When you think of the magnitude of the coverage afforded by homeowner’s insurance versus the premium paid then you would have to agree that homeowner’s insurance is a very good buy. The rates on property insurance in general, have increased over the last ten years. Much of that has to with increased catastrophes like the hurricanes in Florida. The toxic mold problem that originated out west has also caused premiums to increase on a national basis. The home insurance buyer really needs to focus on a few areas to get the most for the premium dollars paid.Accurate Dwelling Amount – This is the first most critical decision that you will make. The square footage of your dwelling has to be correct in establishing the replacement value of your home. The market value is of little use to you when you purchase insuran
Conveniently Omitted Closing Costs
But if we delve even deeper, we can more clearly see the folly of this strategy. Below are typical closing costs associated with a residential re-finance loan. This list is by no means exhaustive but is offered only to give the reader an idea about how much a loan could cost an unsuspecting borrower on a $200,000 mortgage loan.
* Application Fee $450
* Loan Origination Fee 2% or $6,000
* Tax Service Fee $70
* Flood Certification Fee $10
* Closing Fee $475
* Title Policy $1,100
* Recording Fees $350
* Overnight and Email $90
* Appraisal $300
$8,845
If the borrower actually re-finances his ARM in two years, he will have to pay these same closing costs over again. Virtually none of these can be avoided unless you have a friend who is a lender. The costs outweigh th
College student loans are available through Sallie Mae and its subsidiary Nellie Mae, Citibank, The Stafford Federal Loan, Perkins (which is a low five percent interest loan for students funded federally and paid back directly to your school) and many private lending institutions. The Plus program where parents can borrow at a low rate to help fund their child's continuing education is also available. You can access all of these programs online.You can no longer consolidate your college student loans while you are in school but after graduation you can consolidate to ease the financial strain by merging all the different loans into one and spreading the resulting consolidated loan over 12 to 30 years.College student loans are a scary subject for some students and parents but with some careful planning and some research you will be able to fully fund your college needs. When you are at the beginning of your college career, the whole subject of student loans seems overwhelming. Don't despair, you will be able to negotiate all the arrangements to suit your style and pocketbook and after an initial exposure the whole subject becomes nothing more than a little tedious. But you must do it and exercise due
I am not going to go into a discussion as to whether or not this opinion has merit. What I would like to discuss is how such a transaction (the re-finance mortgage, and in particular the Adjustable Rate Re-fi) is pitched to the home owner. Just for the reader’s information, my expertise in this area is based upon the closing of over 750 of these transactions in the last 4 years, most of which involved Adjustable Rate Mortgages (ARM’s).
An ARM amortizes the principal and a fixed interest rate only for a period of years, normally two to five. After the initial term, the interest rate fluctuates with the prevailing rate at the time. The selling point of this loan type is a lower interest rate than a traditional 30 year fixed rate mortgage. In some instances, the payment can be several hundred dollars a month cheaper. Of course, the borrower is concerned the rates are trending higher and wonders if this is a good idea. The mortgage broker “solves” this issue as he explains to his client, “in six months, your credit will be better, and we can lock in a lower fixed rate at that time.”
I witnessed countless instances where this pitch worked with sub prime borrowers. I decided that for this article, I would break it down to dollars and cents since I believe – numbers don’t lie.
So I ran the numbers using the current rates as found on bankrate.com. I am not entirely sure that you can get a 6.15% APR for a 30 year fixed mortgage, but since this is simply an illustration, let’s just pretend, OK?
Now the first 24 months (2 years) of a 30 year fixed amortizes (monthly) as follows:
$ 200,000 @ 6.15%
Payment Interest Principal Balance
9/ 2/2006 1,218.46 1,025.00 193.46 199,806.54
10/ 2/2006 1,218.46 1,024.01 194.45 199,612.10
11/ 2/2006 1,218.46 1,023.01 195.44 199,416.65
12/ 2/2006 1,218.46 1,022.01 196.45 199,220.21
1/ 2/2007 1,218.46 1,021.00 197.45 199,022.75
2/ 2/2007 1,218.46 1,019.99 198.46 198,824.29
3/ 2/2007 1,218.46 1,018.97 199.48 198,624.81
4/ 2/2007 1,218.46 1,017.95 200.50 198,424.30
5/ 2/2007 1,218.46 1,016.92 201.53 198,222.77
6/ 2/2007 1,218.46 1,015.89 202.56 198,020.21
7/ 2/2007 1,218.46 1,014.85 203.60 197,816.60
8/ 2/2007 1,218.46 1,013.81 204.65 197,611.96
9/ 2/2007 1,218.46 1,012.76 205.70 197,406.26
10/ 2/2007 1,218.46 1,011.71 206.75 197,199.51
11/ 2/2007 1,218.46 1,010.65 207.81 196,991.70
12/ 2/2007 1,218.46 1,009.58 208.87 196,782.83
1/ 2/2008 1,218.46 1,008.51 209.94 196,572.89
2/ 2/2008 1,218.46 1,007.44 211.02 196,361.87
3/ 2/2008 1,218.46 1,006.35 212.10 196,149.76
4/ 2/2008 1,218.46 1,005.27 213.19 195,936.57
5/ 2/2008 1,218.46 1,004.17 214.28 195,722.29
6/ 2/2008 1,218.46 1,003.08 215.38 195,506.91
7/ 2/2008 1,218.46 1,001.97 216.48 195,290.43
8/ 2/2008 1,218.46 1,000.86 217.59 195,072.84
And a 5 year ARM amortizes over the first 24 months as:
$ 200,000 @ 5.82%
Payment Interest Principal Balance
9/2/2006 1,176.05 970.00 206.05 199,793.95
10/2/2006 1,176.05 969.00 207.05 199,586.89
11/2/2006 1,176.05 968.00 208.06 199,378.83
12/2/2006 1,176.05 966.99 209.07 199,169.77
1/2/2007 1,176.05 965.97 210.08 198,959.69
2/2/2007 1,176.05 964.95 211.10 198,748.58
3/2/2007 1,176.05 963.93 212.12 198,536.46
4/2/2007 1,176.05 962.90 213.15 198,323.31
5/2/2007 1,176.05 961.87 214.19 198,109.12
6/2/2007 1,176.05 960.83 215.23 197,893.90
7/2/2007 1,176.05 959.79 216.27 197,677.63
8/2/2007 1,176.05 958.74 217.32 197,460.31
9/2/2007 1,176.05 957.68 218.37 197,241.94
10/2/2007 1,176.05 956.62 219.43 197,022.51
11/2/2007 1,176.05 955.56 220.50 196,802.01
12/2/2007 1,176.05 954.49 221.56 196,580.45
1/2/2008 1,176.05 953.42 222.64 196,357.81
2/2/2008 1,176.05 952.34 223.72 196,134.09
3/2/2008 1,176.05 951.25 224.80 195,909.28
4/2/2008 1,176.05 950.16 225.89 195,683.39
5/2/2008 1,176.05 949.06 226.99 195,456.40
6/2/2008 1,176.05 947.96 228.09 195,228.31
7/2/2008 1,176.05 946.86 229.20 194,999.11
8/2/2008 1,176.05 945.75 230.31 194,768.80
There you have it – two amortizations for 24 months. Remember, the sales pitch states that the borrower will repair his credit in two years (sometimes as soon as 6 months) at which time he can lock in a lower fixed rate for 30 years.
It seems the borrower saves the difference in the monthly payment ($1,218.46 - $1,176.05 = $42.41) multiplied by 2 years or 24 months (24 * $42.41 = $1,017.84). Keep in mind that the rate difference is 33 basis points or 1/3 of a percent. In some transactions, such as with sub prime borrowers, the difference can be up to 3/4 of a percent. For purposes of our illustration, the borrower obtains a lower monthly payment by about $43 which equates to a savings of just over one thousand dollars over two years. The question then comes to mind, is it worth it? To find out, let us take the analysis a little further.
Forecasting the Rate
Forecasting future interest rates is rather difficult. I do not think I will get much disagreement with that statement. Considering the current trend and historical averages, however, perhaps we can forecast slightly higher rates in the next two years. If this is the case, how can the borrower be sure his payment will go down once his credit score improves? Sure, his score might qualify him for a lower rate, but how much lower, the borrower is unsure. Could it be the rate for a 30 year fixed mortgage is higher in two years than the adjustable rate is on the date of closing? It is certainly possible, is it not? In my opinion, the borrower cannot possibly be sure if his future fixed rate will be lower in the future. The strategy, on its face, fails because it rests on predicting variables – interest rates and credit score – that are virtually unpredictable in the future.
Conveniently Omitted Closing Costs
But if we delve even deeper, we can more clearly see the folly of this strategy. Below are typical closing costs associated with a residential re-finance loan. This list is by no means exhaustive but is offered only to give the reader an idea about how much a loan could cost an unsuspecting borrower on a $200,000 mortgage loan.
* Application Fee $450
* Loan Origination Fee 2% or $6,000
* Tax Service Fee $70
* Flood Certification Fee $10
* Closing Fee $475
* Title Policy $1,100
* Recording Fees $350
* Overnight and Email $90
* Appraisal $300
$8,845
If the borrower actually re-finances his ARM in two years, he will have to pay these same closing costs over again. Virtually none of these can be avoided unless you have a friend who is a lender. The costs outweigh the
There are infinite numbers of types of collateral as virtually anything can be used for such purpose as long as it is acceptable to the lender. The nature of collateral acceptable for any loan would depend on the type of loan, structure, tenor, amount, etc. The following are some of the common types of types of collateral usually demanded and accepted by commercial loan lenders. Real Estate (Land and Building), Plant and Machinery, Natural Resources (oil and gas reserves), Marketable securities (Stocks and bonds, Certificate ot Deposits, etc), Crops and Livestock, Inventory, Accounts Receivable, etc.1. Real EstateLand and Building represent one of the commonest types of collateral in use especially for term loans and revolvers. These can be houses, office building, shopping centers, warehouses or factory buildings. Real Estate will be ideal as collateral for medium to long-term loans.2. Plant and EquipmentThis refers to manufacturing plant and machinery, trucks, generating set, drilling rigs, presses, forklifts and similar items. These are usually appropriate collateral for term loans, revolvers, working capital loans, syndications. It would be advisable to obtain a professional valuation
So I ran the numbers using the current rates as found on bankrate.com. I am not entirely sure that you can get a 6.15% APR for a 30 year fixed mortgage, but since this is simply an illustration, let’s just pretend, OK?
Now the first 24 months (2 years) of a 30 year fixed amortizes (monthly) as follows:
$ 200,000 @ 6.15%
Payment Interest Principal Balance
9/ 2/2006 1,218.46 1,025.00 193.46 199,806.54
10/ 2/2006 1,218.46 1,024.01 194.45 199,612.10
11/ 2/2006 1,218.46 1,023.01 195.44 199,416.65
12/ 2/2006 1,218.46 1,022.01 196.45 199,220.21
1/ 2/2007 1,218.46 1,021.00 197.45 199,022.75
2/ 2/2007 1,218.46 1,019.99 198.46 198,824.29
3/ 2/2007 1,218.46 1,018.97 199.48 198,624.81
4/ 2/2007 1,218.46 1,017.95 200.50 198,424.30
5/ 2/2007 1,218.46 1,016.92 201.53 198,222.77
6/ 2/2007 1,218.46 1,015.89 202.56 198,020.21
7/ 2/2007 1,218.46 1,014.85 203.60 197,816.60
8/ 2/2007 1,218.46 1,013.81 204.65 197,611.96
9/ 2/2007 1,218.46 1,012.76 205.70 197,406.26
10/ 2/2007 1,218.46 1,011.71 206.75 197,199.51
11/ 2/2007 1,218.46 1,010.65 207.81 196,991.70
12/ 2/2007 1,218.46 1,009.58 208.87 196,782.83
1/ 2/2008 1,218.46 1,008.51 209.94 196,572.89
2/ 2/2008 1,218.46 1,007.44 211.02 196,361.87
3/ 2/2008 1,218.46 1,006.35 212.10 196,149.76
4/ 2/2008 1,218.46 1,005.27 213.19 195,936.57
5/ 2/2008 1,218.46 1,004.17 214.28 195,722.29
6/ 2/2008 1,218.46 1,003.08 215.38 195,506.91
7/ 2/2008 1,218.46 1,001.97 216.48 195,290.43
8/ 2/2008 1,218.46 1,000.86 217.59 195,072.84
And a 5 year ARM amortizes over the first 24 months as:
$ 200,000 @ 5.82%
Payment Interest Principal Balance
9/2/2006 1,176.05 970.00 206.05 199,793.95
10/2/2006 1,176.05 969.00 207.05 199,586.89
11/2/2006 1,176.05 968.00 208.06 199,378.83
12/2/2006 1,176.05 966.99 209.07 199,169.77
1/2/2007 1,176.05 965.97 210.08 198,959.69
2/2/2007 1,176.05 964.95 211.10 198,748.58
3/2/2007 1,176.05 963.93 212.12 198,536.46
4/2/2007 1,176.05 962.90 213.15 198,323.31
5/2/2007 1,176.05 961.87 214.19 198,109.12
6/2/2007 1,176.05 960.83 215.23 197,893.90
7/2/2007 1,176.05 959.79 216.27 197,677.63
8/2/2007 1,176.05 958.74 217.32 197,460.31
9/2/2007 1,176.05 957.68 218.37 197,241.94
10/2/2007 1,176.05 956.62 219.43 197,022.51
11/2/2007 1,176.05 955.56 220.50 196,802.01
12/2/2007 1,176.05 954.49 221.56 196,580.45
1/2/2008 1,176.05 953.42 222.64 196,357.81
2/2/2008 1,176.05 952.34 223.72 196,134.09
3/2/2008 1,176.05 951.25 224.80 195,909.28
4/2/2008 1,176.05 950.16 225.89 195,683.39
5/2/2008 1,176.05 949.06 226.99 195,456.40
6/2/2008 1,176.05 947.96 228.09 195,228.31
7/2/2008 1,176.05 946.86 229.20 194,999.11
8/2/2008 1,176.05 945.75 230.31 194,768.80
There you have it – two amortizations for 24 months. Remember, the sales pitch states that the borrower will repair his credit in two years (sometimes as soon as 6 months) at which time he can lock in a lower fixed rate for 30 years.
It seems the borrower saves the difference in the monthly payment ($1,218.46 - $1,176.05 = $42.41) multiplied by 2 years or 24 months (24 * $42.41 = $1,017.84). Keep in mind that the rate difference is 33 basis points or 1/3 of a percent. In some transactions, such as with sub prime borrowers, the difference can be up to 3/4 of a percent. For purposes of our illustration, the borrower obtains a lower monthly payment by about $43 which equates to a savings of just over one thousand dollars over two years. The question then comes to mind, is it worth it? To find out, let us take the analysis a little further.
Forecasting the Rate
Forecasting future interest rates is rather difficult. I do not think I will get much disagreement with that statement. Considering the current trend and historical averages, however, perhaps we can forecast slightly higher rates in the next two years. If this is the case, how can the borrower be sure his payment will go down once his credit score improves? Sure, his score might qualify him for a lower rate, but how much lower, the borrower is unsure. Could it be the rate for a 30 year fixed mortgage is higher in two years than the adjustable rate is on the date of closing? It is certainly possible, is it not? In my opinion, the borrower cannot possibly be sure if his future fixed rate will be lower in the future. The strategy, on its face, fails because it rests on predicting variables – interest rates and credit score – that are virtually unpredictable in the future.
Conveniently Omitted Closing Costs
But if we delve even deeper, we can more clearly see the folly of this strategy. Below are typical closing costs associated with a residential re-finance loan. This list is by no means exhaustive but is offered only to give the reader an idea about how much a loan could cost an unsuspecting borrower on a $200,000 mortgage loan.
* Application Fee $450
* Loan Origination Fee 2% or $6,000
* Tax Service Fee $70
* Flood Certification Fee $10
* Closing Fee $475
* Title Policy $1,100
* Recording Fees $350
* Overnight and Email $90
* Appraisal $300
$8,845
If the borrower actually re-finances his ARM in two years, he will have to pay these same closing costs over again. Virtually none of these can be avoided unless you have a friend who is a lender. The costs outweigh th
To succeed as an affiliate marketer, you must drive targeted traffic to your website. It's not enough for an affiliate marketer to have drive and determination - you must have traffic. Pleasing website design and compelling content will not convert if you cannot get anyone to see it.With so much competition out there, it can be difficult for new website owners to get their share of traffic. However, help is at hand. You can increase both the quantity and quality of your website traffic by applying these top seven super affiliate traffic building tips:[1] Use Search Engine Traffic To Your AdvantageYour ultimate aim should be to gain maximum exposure on the major search engines, having your website show high in the search results, ahead of the competition. A first page listing on the major search engines will send floods of free, targeted traffic to your web site. To see how this is accomplished, read on.[2] Enhance Your Link PopularityTo attain elevated search engine results your website should be getting a substantial quantity of visits already. One of the crucial ways for achieving this is by linking to other related web sites using link exchanges. While Links help to steer traffi
2/ 2/2008 1,218.46 1,007.44 211.02 196,361.87
3/ 2/2008 1,218.46 1,006.35 212.10 196,149.76
4/ 2/2008 1,218.46 1,005.27 213.19 195,936.57
5/ 2/2008 1,218.46 1,004.17 214.28 195,722.29
6/ 2/2008 1,218.46 1,003.08 215.38 195,506.91
7/ 2/2008 1,218.46 1,001.97 216.48 195,290.43
8/ 2/2008 1,218.46 1,000.86 217.59 195,072.84
And a 5 year ARM amortizes over the first 24 months as:
$ 200,000 @ 5.82%
Payment Interest Principal Balance
9/2/2006 1,176.05 970.00 206.05 199,793.95
10/2/2006 1,176.05 969.00 207.05 199,586.89
11/2/2006 1,176.05 968.00 208.06 199,378.83
12/2/2006 1,176.05 966.99 209.07 199,169.77
1/2/2007 1,176.05 965.97 210.08 198,959.69
2/2/2007 1,176.05 964.95 211.10 198,748.58
3/2/2007 1,176.05 963.93 212.12 198,536.46
4/2/2007 1,176.05 962.90 213.15 198,323.31
5/2/2007 1,176.05 961.87 214.19 198,109.12
6/2/2007 1,176.05 960.83 215.23 197,893.90
7/2/2007 1,176.05 959.79 216.27 197,677.63
8/2/2007 1,176.05 958.74 217.32 197,460.31
9/2/2007 1,176.05 957.68 218.37 197,241.94
10/2/2007 1,176.05 956.62 219.43 197,022.51
11/2/2007 1,176.05 955.56 220.50 196,802.01
12/2/2007 1,176.05 954.49 221.56 196,580.45
1/2/2008 1,176.05 953.42 222.64 196,357.81
2/2/2008 1,176.05 952.34 223.72 196,134.09
3/2/2008 1,176.05 951.25 224.80 195,909.28
4/2/2008 1,176.05 950.16 225.89 195,683.39
5/2/2008 1,176.05 949.06 226.99 195,456.40
6/2/2008 1,176.05 947.96 228.09 195,228.31
7/2/2008 1,176.05 946.86 229.20 194,999.11
8/2/2008 1,176.05 945.75 230.31 194,768.80
There you have it – two amortizations for 24 months. Remember, the sales pitch states that the borrower will repair his credit in two years (sometimes as soon as 6 months) at which time he can lock in a lower fixed rate for 30 years.
It seems the borrower saves the difference in the monthly payment ($1,218.46 - $1,176.05 = $42.41) multiplied by 2 years or 24 months (24 * $42.41 = $1,017.84). Keep in mind that the rate difference is 33 basis points or 1/3 of a percent. In some transactions, such as with sub prime borrowers, the difference can be up to 3/4 of a percent. For purposes of our illustration, the borrower obtains a lower monthly payment by about $43 which equates to a savings of just over one thousand dollars over two years. The question then comes to mind, is it worth it? To find out, let us take the analysis a little further.
Forecasting the Rate
Forecasting future interest rates is rather difficult. I do not think I will get much disagreement with that statement. Considering the current trend and historical averages, however, perhaps we can forecast slightly higher rates in the next two years. If this is the case, how can the borrower be sure his payment will go down once his credit score improves? Sure, his score might qualify him for a lower rate, but how much lower, the borrower is unsure. Could it be the rate for a 30 year fixed mortgage is higher in two years than the adjustable rate is on the date of closing? It is certainly possible, is it not? In my opinion, the borrower cannot possibly be sure if his future fixed rate will be lower in the future. The strategy, on its face, fails because it rests on predicting variables – interest rates and credit score – that are virtually unpredictable in the future.
Conveniently Omitted Closing Costs
But if we delve even deeper, we can more clearly see the folly of this strategy. Below are typical closing costs associated with a residential re-finance loan. This list is by no means exhaustive but is offered only to give the reader an idea about how much a loan could cost an unsuspecting borrower on a $200,000 mortgage loan.
* Application Fee $450
* Loan Origination Fee 2% or $6,000
* Tax Service Fee $70
* Flood Certification Fee $10
* Closing Fee $475
* Title Policy $1,100
* Recording Fees $350
* Overnight and Email $90
* Appraisal $300
$8,845
If the borrower actually re-finances his ARM in two years, he will have to pay these same closing costs over again. Virtually none of these can be avoided unless you have a friend who is a lender. The costs outweigh th
Does it seem like no matter what you do your website just won't climb up in the search engine rankings? If so, your web site may not be optimized well enough for the search engines to increase your rankings. There are some very important factors that determine where web sites are ranked. These factors are referred to as Search Engine Optimization (SEO) techniques and they can make all the difference in your sites rankings.Here are some of the most important factors that the search engines use in determining your rankings:1. Web Site ContentContent on your site is one of the most important factors for successful search engine optimization. Your web site should provide valuable information on specific subjects relevant to your web site. Furthermore, your content should be updated regularly. It's not enough to just put up a few content pages full of information on your site and then never add to it. This is a continuous process that will help your search engine rankings if done correctly.It's also important that you don't try to trick the search engines by flooding them with multiple versions of the same page, repeating the same content over and over. Doing that will not help your rankings a
5/2/2008 1,176.05 949.06 226.99 195,456.40
6/2/2008 1,176.05 947.96 228.09 195,228.31
7/2/2008 1,176.05 946.86 229.20 194,999.11
8/2/2008 1,176.05 945.75 230.31 194,768.80
There you have it – two amortizations for 24 months. Remember, the sales pitch states that the borrower will repair his credit in two years (sometimes as soon as 6 months) at which time he can lock in a lower fixed rate for 30 years.
It seems the borrower saves the difference in the monthly payment ($1,218.46 - $1,176.05 = $42.41) multiplied by 2 years or 24 months (24 * $42.41 = $1,017.84). Keep in mind that the rate difference is 33 basis points or 1/3 of a percent. In some transactions, such as with sub prime borrowers, the difference can be up to 3/4 of a percent. For purposes of our illustration, the borrower obtains a lower monthly payment by about $43 which equates to a savings of just over one thousand dollars over two years. The question then comes to mind, is it worth it? To find out, let us take the analysis a little further.
Forecasting the Rate
Forecasting future interest rates is rather difficult. I do not think I will get much disagreement with that statement. Considering the current trend and historical averages, however, perhaps we can forecast slightly higher rates in the next two years. If this is the case, how can the borrower be sure his payment will go down once his credit score improves? Sure, his score might qualify him for a lower rate, but how much lower, the borrower is unsure. Could it be the rate for a 30 year fixed mortgage is higher in two years than the adjustable rate is on the date of closing? It is certainly possible, is it not? In my opinion, the borrower cannot possibly be sure if his future fixed rate will be lower in the future. The strategy, on its face, fails because it rests on predicting variables – interest rates and credit score – that are virtually unpredictable in the future.
Conveniently Omitted Closing Costs
But if we delve even deeper, we can more clearly see the folly of this strategy. Below are typical closing costs associated with a residential re-finance loan. This list is by no means exhaustive but is offered only to give the reader an idea about how much a loan could cost an unsuspecting borrower on a $200,000 mortgage loan.
* Application Fee $450
* Loan Origination Fee 2% or $6,000
* Tax Service Fee $70
* Flood Certification Fee $10
* Closing Fee $475
* Title Policy $1,100
* Recording Fees $350
* Overnight and Email $90
* Appraisal $300
$8,845
If the borrower actually re-finances his ARM in two years, he will have to pay these same closing costs over again. Virtually none of these can be avoided unless you have a friend who is a lender. The costs outweigh th
Do not just jump in and bid as soon as you arrive on Ebay, a few simple strategies can help you ensure you get your Ebay experience off to the best start.1. Place the item on your watching page.Research the item and decide for certain exactly how much it's worth to you. Search for the item to see what it's selling for on other eBay auctions and/or other websites. Find out how much it can be purchased for (if at all) locally. Remember that it's the buyer's responsibility to determine for himself the value of the item. Spend most of the days of the auction's duration thinking it through. Come to a definite conclusion as to the maximum amount you are willing to pay for the item, keeping shipping costs in mind. That is one of the most important things you can do.2. Do some research on the seller.Check not just his feedback rating number, but also what comments are written about him, especially any negatives. Sometimes undeserved negatives get written about people, buyers and sellers alike. Try to determine a pattern in the transactions that drew the negatives. Is the seller basically honest? Does he work to solve any differences or problems that may arise? This gives you the chance to determi
Conveniently Omitted Closing Costs
But if we delve even deeper, we can more clearly see the folly of this strategy. Below are typical closing costs associated with a residential re-finance loan. This list is by no means exhaustive but is offered only to give the reader an idea about how much a loan could cost an unsuspecting borrower on a $200,000 mortgage loan.
* Application Fee $450
* Loan Origination Fee 2% or $6,000
* Tax Service Fee $70
* Flood Certification Fee $10
* Closing Fee $475
* Title Policy $1,100
* Recording Fees $350
* Overnight and Email $90
* Appraisal $300
$8,845
If the borrower actually re-finances his ARM in two years, he will have to pay these same closing costs over again. Virtually none of these can be avoided unless you have a friend who is a lender. The costs outweigh the dollar on dollar monthly payment savings by over 8 to 1. What a deal! Remember, this calculation does not even consider the time value of money or opportunity cost on interest paid.
Meanwhile, if you look again at the amortizations, you will see that virtually none of the principal is paid after two years. (For more on this situation, read my article entitled, An Interesting Look, written several weeks ago.) What this means is the borrower must start the process again, paying almost all interest for the first several years and virtually none of the principal. In effect, the borrower has been renting his house for two years – the bank as the landlord. After all, it is the American way.
Of course, a mortgage banker would probably resent this analysis and likely offer the following rebuttal: An honest banker (trying not to laugh) would make sure the product/loan fits the borrower’s needs. For example, a good loan officer would ask whether the borrower plans on staying in the home or if the borrower expects to move in a few years. If he stays put for 30 years, the savings and “peace of mind” more than outweigh the closing costs.
But this is an awfully big “if”. And since the borrower misplaced his crystal ball, he usually nods and says he has nowhere to go. But the “honest” banker knows the vast majority of people move within 5 years and virtually no one pays their mortgage off in full anymore.
The real problem is that people trust these bankers to get them a good “rate” which the borrower thinks is the heart of the issue. The real issue is the amount of the loan. The rate is simply the smoke screen bankers use to separate their customers from their money, time and time again. I see closing costs in excess of $10,000 in these deals over and over again. But the borrower almost never asks about them. All he is concerned with is the rate and payment. If the figure fits into his budget, he signs the papers. It is as simple as that. A simple look at what it costs clears away the fog – yet very few every bother to do so.
I guess they figure the price of real estate will always go up and that the costs are simply what you must pay to play in the real estate market. Essentially, a home owner takes a position in a free market asset just like a trader takes a position in the futures or equity markets. But real estate is usually a highly leveraged asset in an illiquid market. These two characteristics of the residential real estate market pose significant risks to owners of this asset class.
Of course, maybe they are right. Perhaps this time it IS different.
Thanks for listening.
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