"If you can do a 30-year, fixed-rate mortgage, do it!" says Keith Springer, president of Capital Financial Advisory Services in Sacramento, Calif. If your client can't get a fixed-rate mortgage and needs to refinance, you might consider a 5/1 ARM, which has a fixed interest rate for five years and then becomes a one-year adjustable rate mortgage afterward. These have been running around 3%, says Springer, a CFP who doubles as a mortgage broker. "Even the new adjustable-rate mortgages are going to be cheaper." Fixed-rate mortgages may also have 40-year terms, which can spell long-term lower payments. Of course, the longer the term, the longer interest accrues.
Rich Arzaga, a CFP and founder of Cornerstone Wealth Management Inc. in San Ramon, Calif., says that whenever his clients inquire about option ARMs, he'll immediately refer them to a reliable mortgage broker-somebody with whom he can negotiate. Or he'll send clients to a lawyer or real estate broker, depending on the situation.
U.S. Housing and Urban Development spokesman Brian Sullivan suggests that borrowers in trouble visit the Web site www.makinghomeaffordable.gov. By clicking on "eligibility," and checking out the site's interactive program, a borrower can determine whether he might be eligible for various forms of government relief. A borrower might also get free counseling by calling 888-995-HOPE (4673).
"Nobody should pay others who guarantee they can modify a mortgage," Sullivan stresses. "Always talk to the lender. Lots of people get themselves in trouble when they don't answer the phone or open mail."
Standard & Poor's analysts say option ARMs are not getting modified at the same rate as other loans because loan balances are so much higher than home values.
Nevertheless, there is some good news on the option ARM mortgage front. For one thing, option ARMs are largely concentrated in California, Florida, Nevada and Arizona, according to Fitch.
Also, both Fitch's and Standard & Poor's analysts agree, the U.S. government's long-lasting low interest rate policy appears to be cushioning the blow of these products on borrowers.
Also, Slump notes, at least in California, home prices have risen 8% over last year. With rising home values, borrowers are better able to keep making mortgage payments and to qualify for refinancing.
But not all regions-even those in California-can boast rising home values, he says. Nor are rising home prices predicted to continue. "Across the United States as a whole, there is likely to be another 10% national price decline from this point forward," Slump says.