Mixing Gasoline With The Pay Option Arm
Here’s something interesting, I often hear phrases like this:
I know people want to save money, but they don’t want to risk the possibility of their rates going up.People are scared that their payments will increase so much that they can’t afford their home.Those ARM things are too risky, people around here are way too conservative for one of those things. (this is usually said by the “seasoned” loan officer who’s too afraid to attempt to sell anything but a fixed rate. It’s their way of avoiding the truth) Now, I’m going to tell a story that actually happened not long ago and then we’ll discuss how it relates to those statements.
A short time ago, a friend of mine called me to let me know that a radio station was teaming up with a local gas station and they were having some sort of promotion and the price of their gas was $2.05/gallon. The going price at the time was about $2.80/gallon. A savings of .75cents/gallon! I was told that all the traffic was backed up and people were saying they were waiting in line for 2 hours to get gas. Not a bad deal, eh?
Now, let’s think about this, shall we? Let’s assume, the average automobile’s gas tank capacity is somewhere between 12.5 gallons to 15 gallons. (I know there are SUVs and Mini Vans out there that have bigger gas tanks, but let’s stick with concepts today)
So, if the average person were to fill their tank at this particular station, they would be saving right at $11.25 compared to other gas stations (assuming a 15 gallon tank). So, let’s assume the average person fills their tank every 3 days, that’s 10 times a month. So, that’s a savings of $112.50/month. We forgot to take in consideration the 2 hour wait to get the gas in the first place! So, to make this easier, let’s say this person spends an average of 1 hour waiting to fill their tank. So, that’s 10 hours a month to save $112.50. That seems pretty good, doesn’t it?
So, now you come along and tell someone you can show them how to free up $200-$500 a month by utilizing the Pay Option Arm. You would think they would just flip out, jump on the table and say “Whoo Hoo!” Then, you tell them they won’t have to spend 10 hours a month doing it. WOW! This is too good to be true.
Do you think the “too conservative” guy has a problem with this? I don’t know, maybe that’s not conservative enough for them.
The person that is afraid their rate will go up should spend their 10 hours waiting for gas to try to understand the differences in the Indexes and figure out what’s best for his situation.
The people that are afraid they may lose their home should forget the $112.50 gas savings and take that 10 hours and somehow produce more income per month!
Oh sure, you will always get the “Yeah, but your mortgage balance will go up…bla-bla”. That’s an objection I’ll cover another time.
My point is by going through this little example is to show you how you can discuss the Pay Option Arm in real world scenarios with your borrowers. Get them to trust that you are the expert and then you will lock the deal. Will it always be a POA? Nope, but you still got the deal, right?
I would like to invite you to get “mortgage tips with an attitude”. It’s a free weekly article about the mortgage business called the Mortgage Mailbag. The first installment is “The 5 Biggest Myths about the Pay Option Arm and the Real Truth About Them”. You can access this free service at http://www.MortgageMailbag.com
Tags: mortgage, mortgage training, Option Arm