I saw an ad online recently, sitting in a banner to the side of the article I was reading, featuring a woman dancing in her office cubicle 'oblivious' to the person holding the video camera. When the dancing woman 'discovers' she is not alone, she abruptly stops dancing and holds her hands up to her face in embarrassment. I have no idea what this ad is supposed to mean. Does it have anything to do with the low mortgage interest rates advertised above the video? Perhaps the woman was dancing because she was so happy to have found a way to drastically lower her mortgage payment? I'm at a loss.
If you have no idea what I'm talking about, you've probably seen other versions of the same ad. They are all designed to grab your attention with bizarre graphics and videos that seem to have very little to do with mortgages.
So, without trying to explain their advertising techniques, it is safe to say that the only way you can get the deals offered in these ads, like a 1.99% mortgage rate or a $500,000 mortgage down to a payment of $1,609 per month in today's market environment is to either pay a huge amount of fees or to use what's called an Option ARM. An ARM is simply an adjustable rate mortgage, but it's the 'option' part that's worth discussing here.
An Option ARM mortgage program gives the borrower the 'option' to make payments based on a low interest rate. I've seen this rate advertised as low as 1.99%. The problem is that while you are taking the 'option' of paying at a low rate, your mortgage is still accruing interest at the 'not optional' interest rate that probably sits well within the range of normal programs. Not only does this mean you will never pay off your loan, it means you will end up owing a higher balance than you started with!
There are some arguments out there that suggest you can take your 'monthly mortgage savings' and invest them in the stock market. It's possible there are some people out there doing that and I suppose it's also possible that some people are making enough of a gain to make up for the fact that they will end up owing more money on their mortgage. But I'm going to go ahead and say Option ARMS are just plain dumb and their advertisements are even worse.
