North Texas Real Estate Blog

Maybe it is intentional by some mortgage brokers to trap borrowers into unaffordable loans so they can pocket big commissions.  Let’s just offer the benefit of the doubt and say that it happens through ignorance or lack of product knowledge. 

Regardless of why we are now hearing loud cries on the subject, buyers of North Texas real estate—beware.  There are plenty of other options throughout Southlake real estate, Colleyville real estate, Grapevine real estate, and all through Denton and Tarrant County real estate markets for us to find a suitable property in North Texas with payments that you can afford for the long run.

During the past few years, eager buyers have apparently signed on for seemingly innocuous loans called option Adjustable-Rate Mortgages.  Option ARMs were originally created to accommodate salespeople with fluctuating incomes.   They are a good option for a very limited segment of people. 

It seems that during the last three years of the housing boom, however, option ARMs were sold to a broader range of buyers.  A month or several months after the agreement, reality hit hard and many of these buyers are now losing their homes.

As a buyer, it is imperative that you understand the buying process, especially if you are a first-time buyer.  If you are pondering an option ARM, you have four choices for monthly payment amounts.

If you pay the highest amount every month, your loan will be paid off in 15 years.  Pay the second-highest amount and it will take 30 years to pay off the loan.

Then the third-highest amount will allow you at any time during the loan to choose to pay only the interest accruing that month.  That month you will not pay any of the principal.

The lowest amount is a minimum payment amount.  That lowest payment is what impresses many people with its low 1 or 2 percent a year rate.  But it can be a trap for many who are struggling financially.  After the first month, this minimum payment will not be paying either the monthly interest or any of the principal, resulting in a loan that grows.

Depending upon how the hundreds of documents are written and how your mortgage loan officer explains the deal, the buyer can even be deceived into thinking that things are much better than they actually are.  When payments becoming impossible and you consider refinancing, the fine print may reveal a prepayment penalty, which can be tens of thousands of dollars.  Over time, your loan amount could very well surpass the value of the home and put you in hot water.