Looking back, three or four years ago, the word interest only created a big mark on our industry. Thus, the word Pay option Arm came after.
Interest rates were very low and everyone is like crazy claiming and bragging that they have the lowest rates in town. Customers would love to call 5-10 mortgage companies and get a deal for almost no cost since a lot of mortgage companies were including on pure volume to formulate their money, thus, it didnt matter if they charge much or not.
For some brokers, started offering some version of the POA to counter these low fees. It is exclusively based on the lowest Index at that time. The main reason why they did that is to be different from other mortgage companies. Meaning to say, the more mortgage companies that offered it, the more admired it became to main stream. To maintain with the inclination, more mortgage companies set in motion offering the POA. Though, there is nothing wrong with this, lets face reality that its the way business is ran.
The point is, because of the way of what brokers think the POA is all about, they were suggesting the POA with the lowest index and/or the lowest minimum payment rate.
This is where they based all their sales quotations and because customers are more concern with the interest rates, it seems everything is fine, only at first! Then certain indexes started to increase its rates. Apparently, the rise of the Index, attached with the added low minimum payment, made for some is an extremely aggressive Deferred Interest, or Negative Amortization, and the borrower isnt ready for this, because he didnt planned properly.
You must keep in mind, that if Deferred Interest or Negative Amortization is properly elucidated and understood, its definitely the best financial tool to use. But, it must be explicated and fully understood by the recipient. As the Index was rising, same happens with the 30 year interest rate. Afterwards, the 30 year started to decrease, which the news media and radio are advertising and convincing people to break their ARM and the likes. In effect, the people who refinance a few years ago started to watch and when they heard about the 30 fixed mortgage decreasing cost, that triggered the refi-itch again, and they begin to shell out concentration to their mortgage statement.
Customers will like be in shock because they just saw and realized how the money they were paying was used. It has always been the case, but people cant seem to pay attention in it until someone told them to do so or something provokes them to read. Things get worse; if they withdraw automatically from their bank. And in my own opinion, its just a natural human reaction. Then, these people will tell all their rants about POA, but in reality, it is not POA that they have to be blame, rather they must blame the person who never explained it to them properly.
Any person has the right to know what they are going into. Especially with things like this, a good decision making is very important so that there will be no regrets at the end.
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