Author: Joseph Corno – President – We Be Consulting and Seminars
We have a wonderful opportunity in marketing something unique for this time period. We have various amortization terms that we can offer borrowers. There has always been amortization, as part of the loan terms, but have we really used it to sell people on a loan?
The answer to the question is yes. For decades every loan product, and what every one accepted for their loan, was a 30 year amortization schedule. The monthly payments were X and they were this payment for 360 months. Your Great Grand Parents and Grand Parents had loans with 30-year amortization schedules.
The originators of the past did such a great job “selling” our ancestry that when shorter term loans, 15 year and balloon payments came along, the potential consumer rejected such nonsense for some time.
Then; when interest rates started to drop, over the past 3.5 decades, borrowers realized that they could “match their payment” on their existing 30 year loan by refinancing into a lower rate and shorter term program. Your parents took advantage of the lower rates and shorter terms: IE: 20, 15 and 10 year.
Some of your parents went with a new product introduced 2 decades ago. They financed with an Adjustable Rate Mortgage, (ARM). Originators loved the new and innovative loan product and we have these industry pioneers to thank for changing the consumer mindset.
Originators back then faced stiff consumers, use to what their forefathers had borrowed on, and it took almost a decade to sell the ARM product. There was no “interest only” allowance, or a choice of 4 payment options. These types of ARMS have only been around for approximately the past decade.
The past trail blazing originators cleared the way for the American consuming public to break away from traditional 30-year loans and the result has simply been phenomenal. The diversity of loan programs being offered increased the amount of people being able to qualify and purchase a home.
When there arose somewhat of a blockage for people to consider taking advantageous of the equity in their homes, we had higher than reality loan to value, (LTV), being offered. At the turn of the century and 125 percent loan to value loans were introduced and then quickly disappeared.
Lenders have experimented with LTV, teaser rates, intermediate arms, and have found that people utilize such programs to facilitate purchasing a home. The result has been that a home is a great item to own. It shows in where home values have been going.
Values across the board, over the past 4 decades, have continued to rise. Some areas faster than others. Originators continue their trail blazing to create an environment where more people can benefit in home ownership. With people living longer, and enjoying life longer, why not offer LONGER amortization terms?
For probably the first time, in the history of the loan industry, 40 and 45-year amortization terms are coming forth as a marketing tool. A loan payment with a 40-year amortization payment is lower than an interest only payment on a30 year term. As the price of a home goes higher, 40-year amortization makes the payment affordable and manageable to consumers once again.
The period of “creative financing” was recognized in the early 1970s with double-digit interest rates. However; no one was increasing the loan term back then. The period of creative financing has always been in the industry and will continue to produce concepts to allow people to finance their properties.
Longer amortization terms are the newest evolution in creative and measurable loan programs. The 40 and 45-year programs are as huge as when people recognized the benefits of the intermediate ARM. You know: the 3 – 5 – and 7 year fixed period before the adjustable rate portion starts impacting the loan.
Start studying and understand 40 and 45 amortization tables. We will need to print out new tables for training courses. Marketing longer term will be easier than the pioneering lenders saw in marketing adjustable rate and option ARMS.
This is a very exciting time in the industry and in this country. I am waiting and ready when a 50-year term is introduced for us to market to today’s consumers. We may get long enough loan terms that your grand children may be paying off your loan.