How ArcLoan is Better Than Fixed Rate Mortgage: A Different Kind of Home Loan
Posted: Tuesday, March 24, 2009
by Mogama
http://www.mogama.info
Until I heard about this mortgage
company, I knew only of three kinds of mortgage loans for the home
buyer in America: (1) Interest Only Mortgage, (2) Adjustable Rate
Mortgage, and (3) Fixed Rate Mortgage.
In an Interest Only Mortgage (IOM), all
your regular monthly payment goes toward interest, leaving your
principal loan amount untouched. Of course, you may make extra
payment towards principal. If you borrow $100,000 on a home and make
only your monthly payment for a 5-year interest only mortgage, you
will have a principal balance of, you guessed it, $100,000 after 5
years.
What a sweet deal for the bank!
With IOM, you only pretend to be a home
owner, but you are in effect a renter, with the lender as your
landlord, because you build no equity in the home. For that reason,
IOM can merely stand for "I Owe Money" on my home.
The second common type of home loan is
the Adjustable Rate Mortgage (ARM). With this loan, your interest
rate has a floor, and it will not go below that bottom line. However,
when the key interest rate on which your loan is based rises, your
personal interest rate will go up. And this upward move can
dramatically increase the size of your monthly payment, like from
$1,000 to $2,500 a month, depending on how high your interest rate
rises.
For reasons of fairness in lending, the
ARM typically has a ceiling above which the interest rate cannot
rise. Let's say you started out with a 6% rate; the ceiling or
highest rate could be 12%.
Like the IOM, the ARM is a win-win for
your bank or lender, not for you, except for the wonderful privilege
of your qualifying for their loan.
The Fixed Rate Mortgage (FRM) is the
third popular type of home loan. Financial experts differ on how many
years to put on a home loan. Dave Ramsey, a popular radio talk show
host, prefers a 15-year-fixed rate mortgage, while most people opt
for the 30-year fixed rate mortgage. I like the Dave Ramsey way, for
the obvious reason of huge savings in interest payments over the life
of the loan.
Most personal finance experts agree
that the fixed rate mortgage is better than either the interest only
mortgage or the adjustable rate mortgage. But I have stumbled upon a
fourth type of mortgage loan that's better than interest only,
adjustable rate, and fixed rate. Actually, it could also be called an
adjustable rate mortgage, but it goes in the opposite direction of
the traditional ARM. Whereas the regular adjustable rate mortgage is
set up to favor the bank or lender in the event of a rate increase,
an Arc Loan is structured to benefit the borrower whenever interest
rate falls.
Here is the beauty and benefit of the
Arc Loan for you the home buyer: (1) It has the benefit of the fixed
rate mortgage in that your rate stays the same over the life of the
loan, if rates were to increase or stay put. (2) You benefit from a
lower interest rate every time the index rate of your loan drops. To
sweeten this arrangement, when interest rate heads back up, your rate
will remain at the new low rate. In other words, you've got what
ArcLoan calls the "automatic
rate-cut loan."
Let's say on the day that you closed on
the loan (signed the loan papers), the interest rate was 6%. Then
mortgage rates drop to 5.75%. Your rate drops to 5.75% and remains
fixed at that rate. OK, say you are the lucky or blessed kind, and
interest rate tanks to 5%. Well, that's your new fixed rate. What if
mortgage rates reverse upward and soar to 8%? What happens to the
interest rate on your Arc Loan? And what happens to your monthly
payment? Nothing! Your rate remains locked in at that low 5%.
The first time I heard about ArcLoan
was on NPR (National Public Radio). If it had been a commercial, I
would have dismissed it as some kind of scam. But Jordan Goodman was
being interviewed on NPR. Jordan Goodman is known as America's Money
Answers Man. He has written 11 books on personal finance including
Everyone's Money Book on Real Estate.
Here
is what Mr. Goodman says about Arc Loan: "In the 30
years I have covered personal financial issues, the ArcLoan is the
most innovative and consumer-oriented product I have ever seen. While
most borrowers are suffering with mortgage payments that keep going
up, ArcLoan borrowers aren't affected by rising rates and benefit
when rates fall. In my case, my ArcLoan fell from the original rate
of 7 3/4% to 4 3/4% in six steps over 3 years, and it will never rise
from that level. Everyone who
qualifies for an ArcLoan should get one!"
By the way,
ArcLoan has been doing business for 16 years, starting in 1993. Also,
ArcLoan is a NASDAQ-listed company, trading under the name Access
National Corporation, with the ticker symbol ANCX.
It's been months
since I visited arcloan dot com. Frankly, I had forgotten their name.
Days ago, Harriet and I started thinking out loud about the need to
refinance our home loan and save money. I was frustrated that I could
not recall the name of the company that would benefit us whenever
rates fall in the future. Fortunately, a rep emailed me, and I
replied, then called and left a message. The guy called me back and
answered my initial questions and doubts. Though I don't know every
detail yet, after discussing our conversation with my wife, I intend
to apply for an Arc Loan.
Another good thing
is there is no application fee, so until we agree to pay an appraiser
of our home, we can walk away from the application process and pay
nothing to ArcLoan.
During these
economic down times when keeping more of our money is no longer a
crazy idea, I'm on board with Jordan Goodman's advice: "Everyone
who qualifies for an ArcLoan should get one!" In that sense, this
SearchWarp article could be worth thousands of dollars in your
pocket, purse, or bank account, or to a home buyer/owner you know.
This is certainly worth looking into. Good job Mogama. This is the kind of thing the people need to know about I will look into it myself.Thanks for reading, Ken. I wish you best outcome with ArcLoan. ~mogama~
Mogama,Thank you for this info. I am looking to refinance because I am one of those dreaded ARMs. (Can't complain though, I paid only 5% this month.)In any event, I will definitely check this out.Well done!NancyThanks for reading the article, Nancy. Yes, refinance is in place at this point, because it's very likely interest rates may take off as soon as the economy smells the bull again. Hopefully ArcLoan works out for you as your refinance option. ~mogama~
Mogama - have you heard of the open end loan. This is your home equity line. It is the same as a credit card loan. If you go through bankruptcy that is discharged whereas a regular home mortgage can cost you your house. Regardless, of the people who think there home is protected by a homestead. That is only from "Unsecured" lenders. Wow they have the onions to say unsecured, my God how brazen the lies. Best wishes, Robert.,No, Robert, I haven't heard of the open-end loan. Sounds like a joke. Thanks for your comment. ~mogama~
Really great article Mogama. How long have they had the Arc loan? I think my questions would be can you make extra payments on the principal only, and can you can pay it off early without a prepay penalty. Just some food for thought.Hi there, Linda. They've been in business since 1993; that's 16 years. No prepayment penalty. To hear it from one of their rep's lips, call the toll free number posted on their website, arcloan dot com. Thanks for your comment. ~mogama~
