Jack M. Guttentag The Mortgage Professor

Yahoo! Finance User - Friday, March 2, 2007, 12:10PM ET  Report Abuse

• Overall: 5/5

Good heads up for those thinking about this kind of loan. People do what people want to believe will work. I have both 30 yr fixed and 5/30 ARM. I like them both for their intended purposes, however, I shopped carefully and stayed within my means. That's the bottom line.

Yahoo! Finance User - Tuesday, February 20, 2007, 9:52PM ET  Report Abuse

• Overall: 1/5

This article is garbage. He never mentions the fact that any regularly 30 year amortizing loan take 24 years to pay down HALF of the priciple balance. After year 15 you havent even touched 25% of the priciple balance.. The banks whole idea in a regular mortgage is to refinance you in the earliy years so that they get thier money first and you get yours last. Well it just so happens that the national average for people to refinance thier loans is 4.2 years. That means that the LARGE MAJORITY of thier (the borrower's) $2000/3000/4000 monthly payment is going straight to the bank. Option ARMs at least give you the chance to take control of the money you normally would have paid to the bank and add it to the principle balance. By doing this you, essentially take out an additional loan at the true interest rate on the note. By paying the minimum payment it cuts your mortgage payment in half. Just by common sense, anyone can figure out that if you take out money at a 7.5% and invest it with a rate of return higher than that you will be making money. Nobody ever went broke by taking a profit. Also if your in a down real estate market this loan gives you the capability of controlling literally aproximately DOUBLE the amount of propety which will return to you double the amount of return when the market becomes inflated again. There are lots more to this loan than this man looks at and considers. The thirty year fixed mortgage is for people who plan on staying in that mortgage for 30 YEARS however nobody does this and therefore it become THE MOST EXPENSIVE (30 year fixed) loan on the market. In the fifth year of any thirty year fixed mortgage (a few months after the national average has alreadt refinanced) you have paid a large amount to interest and virtually nothing to principle in comparison. This inflates the TRUE interest rates on 30 year fixed mortgages to literally hundreds of percents. A HUGE FACTOR that this man never mentions. The only way a thiry year fixed mortgage is good is if you plan to stay in it for thirty years.. THATS IT! The reason that this loan get bad press like this is that not many people understand how to use it and abuse the low payment rate as if it extra spending cash. This is a financial tool that takes dicipline and planning to use it is not meant to be misused by the borrower you need to do something that will make you more money in the long run with this loan. And that not even half of the reasons you can use it I just dont feel like typing anymore!

RandomLeeKind - Friday, February 16, 2007, 1:50PM ET  Report Abuse

• Overall: 5/5

Excellent article. Pay option loans don't benefit the consumer/borrower, they benefit the banks and lenders who are able to finance your would be equity for the rest of your life. The end result is higher home prices and less equity at retirement. Who do you think gets rich when you go with the increasing trend of not owning your home free and clear?

Frank Rodriguez - Thursday, February 15, 2007, 11:35PM ET  Report Abuse

• Overall: 1/5

Equity is NOT cash...most people NEVER pay their homes off living on average in them 8-9 years and refinancing every 4-5...simpletons look at Option ARMS as "Negative Amortization" when in fact, you are going "negative" on your cash that you plug into the walls of your house "interest free". What's the monthly payment on a 30-year loan with a monthly payment of $2,000 in year15? $2,000!!! How about year 20? Or year 29? the same. Yeah, that's right, your payment NEVER goes down regardless of how long you've had it? And what do you get at the end of those 30 years? Oh, you don't have to pay $2,000 anymore...of course with normal inflation a $2,000 payment today will be the equivalent of a $700 payment in 30 years in todays dollars and nobody could argue that that ain't a life-breaker for most people...unles they don't have REAL savinfgs that is!! Here's a question for the simpleton's like Mr. Guttentag: How much interest is your mortgage paying you? How much income do you generate from your house? And if you were to pay off your house, and lets use the example of a $300,000 mortgage at 6.5% over 30 years here, how much of the $600,00 that came out of your pocket (not including taxes and insurance) will the bank give you back with INTEREST if you want to borrow some money BECAUSE YOU NEVER SAVED A DIME while you were busy following Mr. Guttentag's simplistic advice? That is where an option arm comes in. An Option Arm is for sophisticated borrowers to be used as an investment tool or for folks who are in "Address transition" who have equity but could use more cash NOW before they sell their homes and move. On a balance sheet, equity and cash are assets with equal value...but try buying a STICK of gum at the local 7-11 with a copy of your appraisal ("Look here! My house is WORTH $600,000") and your mortgage statement ("..and as you can see, my balance is only $80,000...clearly you can see I can pay for this stick of gum so why won't you ring it up and give it to me???") yet NOBODY CARES about your equity until you do what??? CONVERT IT INTO CASH! And to do that you can only sell or refinance over and over and over....or have an Option ARM that CAN monthly convert accumulated equity into cash. You're gonna pay the bank one way or another and with a fixed rate mortgage that Mr. Guttentag advocates like many of the OLD way of thinking, all you pay is the bank OFF (though probably NEVER) and you are left with ZERO...and end up selling to make ends meet because ALL of their money went into the walls of their homes over the years and not into their own interest-bearing savings accounts or retirement accounts. BRILLIANT advice! One more thing: Due to inflation, a Dollar into the walls of your house does NOT come out as a dollar...that is why $1 million doesn't buy what it used to and why folks who spent their lives paying off their house can't retire without skimping if they used ONLY thier house as their primary SAVINGS tool over their lifetimes...cash is cash and equity is cash "un-realized" and once people GET THAT they will be a LOT better off. Read "Missed Fortune 101" and "Ordinary People, Extraordinary Wealth" if you seek the REAL way to do things folks. 'Ol Jack G. is from the 1940's way of thinking.

petevegas - Monday, February 12, 2007, 5:34PM ET  Report Abuse

• Overall: 5/5

stay away from POA's (Pay Option ARMS), Freedom Loans, neg ams, deferred interest loan,s, or any other cute name a lender, broker, or bank comes up with. For the most part, everyone who has gotten into one of these has regretted it. You will lose equity, be forced to refinance, probably get crushed with an early pre payment penalty. Get a 5,7, or 10 yr IO (interest only)...a much better option.