Stay Positive and Be Honest With Your Mortgage Clients
Variable interest rate mortgages are sometimes looked upon with frightful faces because they are often connected to the housing crisis of the early 2000s. So, it can be challenging for a loan officer to discuss this option with a potential homebuyer. But variable rate loans aren’t as bad as many make them out to be. In fact for some people, they can be the ideal type of loan.
The questions will eventually come up, so you will have to deal with the topic of varying interest rates sooner or later. Here are some tips to keep it positive and help the prospect fully understand the benefits of getting a variable interest rate mortgage, if the situation calls for one.
Variable Rate Talking Points
A variable rate loan is scary to some people, but it’s the loan officer’s job to shed some light on the topic and bring it out of the dark. Some of the things you can touch on include the fact that a variable rate loan can give the borrower a lower payment over the short-term compared to a fixed-rate loan, which typically carries a higher interest rate from the start.
This can prove very beneficial to people who don’t plan on living in the house long-term. A variable rate loan is also a better solution for someone who doesn’t have perfect credit. Of course, there is always a risk attached to these types of loans, and you need to make sure your clients are aware of them before you make a sale.
Possible Disadvantages of Varying Rate Loans
A varying rate loan could cause the borrower’s payment to increase unexpectedly. This is because this type of loan follows the national interest rate, so when the national rate rises, so does the rate on the loan. For someone who is having difficulty making their current mortgage payment, a subtle increase can cause them to be unable to meet their payment obligation, which could put their home at risk of foreclosure.
To avoid this unpleasant situation, you need to make sure your client is the ideal candidate for this type of loan. As stated earlier, people who don’t expect to live in the home very long are typically ideal because they will likely sell the home before their interest rate rises.
Regarding the borrower with less than perfect credit, the idea is for them to get a variable rate loan, so they can take advantage of the lower monthly payment early on, but then refinance to a lower fixed rate loan once their credit is good enough to do so.
These two situations generally represent the best types of candidates for this type of loan. If the borrower is planning on living in the home for the duration of the loan, then a variable rate loan may not be a good idea unless, that is, future forecasts point to interest rates falling.
In any case, you need to be honest with your clients about the advantages and disadvantages of varying rate loans. Being honest will help them choose the right product for their needs, and will prepare them for what the potential future holds should they choose to go with a variable rate loan.
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