Selling the option loanBrian L. Peartoption ARMs
One of the fastest and most popular types of loan programs on
the market today is the option loan, which is also known by many
different titles including option ARMs or choice loans. It is a
loan now offered by most wholesalers and provides four types of
payments: a minimum payment (usually around one percent), an
interest-only payment, a 30-year and a 15-year payment - the
customer can choose which payment to make each month. I am not
going to outline the pluses and minuses of this loan or explain the
product in detail. Your wholesale representatives can do that.
However, I will explain how to sell this type of loan, who to sell
it to and how to add it to your arsenal of loans.
When selling the option ARM, you must remember that it is a
consultative sale. At this time, you may not get many requests for
this loan; more often it will be something you segue to from an
interest-only loan. At the most, you may get someone calling up
asking for the one percent rate they saw in the paper. Nonetheless,
the way to sell an option loan is to ask questions, educate your
borrower, determine what is best for them and allow them to buy.
Your customers should be buying this loan from you, rather than you
hard-selling it to them. If you have to hard sell the customer,
then you are selling them the wrong product.
The ideal customers for this loan are people who handle their
money well, do not max out their credit cards and who think about
their home as an investment vehicle as much as a place to live.
This product is ideal for investors! Then the aim of your questions
should be to determine how astute they are regarding money. Helpful
questions to ask your client include: how do you pay your credit
card bills each month? What types of investments do you have right
now? What are your financial goals for the next five years?
Remember, although they are generally tied to safe indexes,
option loans will go up over the next few years and the longer time
frame the person has in mind, the less attractive this loan can
potentially be. Someone who is 50 years old, has very little money
saved and wants to die in their house is probably not a good
candidate for an option loan. These loans free up cash flow - that
is their main purpose. They give you the option of paying as little
or as much as you want. However, as loan officers, the onus is on
us to determine if this product is best for them.
To sell an option loan, begin with their interest-only question
or inquiry about the one percent rate and then follow up with
something like this: "Yes, we have a full array of great products
designed to free up cash flow. What we need to do is determine if
they are right for you and if so, which product is the best. Tell
me, how much do you have invested now and in what? Do you pay your
credit cards in full every month or just the minimums? How long do
you plan on staying in this home?"
As you ask these questions, you are positioning yourself as the
expert and you can get a feel for whether this loan is the best for
your prospect. I would then explain some aspects of the loan and
gauge their financial literacy by the questions they ask. If they
just don't get it at all, then steer them away by sharing with them
the danger of these ARMs - the rates adjust and are likely to go up
and you can have negative amortization if you don't handle them
correctly. That will usually work to sell them away from the
product. Remember, it is your responsibility to determine the right
program for the customer. If they seem literate, then tell them you
will shop for the best product for their needs and call them back
in a few hours. Meanwhile, e-mail or mail them some educational
materials (such as our special report on option loans, which you
can obtain by e-mailing
[email protected])
so they can have a better understanding of the loan. This
combination of concern and informative reports should prove to be
unbeatable. The options you present them with will almost always be
bought and you will have an applicant. If you have done it
correctly, you should hear the customer telling you how great it
sounds and that they want to get going.
Some sample questions that can help you introduce the option
loan are as follows:
- "Would it help you if you could use your existing mortgage to
help build your retirement nest egg?" (This question could help you
get some refis, even if the prospect just refinanced.)
- "Are you satisfied with the assets youve accumulated thus far for
retirement?"
- "Are you trying to get the lowest possible payment?" (This
question is good for purchases.)
Next, introduce the program by asking, "We have a hot new
product called an option loan that can help you achieve this; would
you like me to explain how it works?" What you say here is
critical! By offering to explain the product, you were setting
yourself up as the expert. You now have control of the call.
When explaining the loan, start with the payment and example.
Calculate their minimum monthly payment on the low start rate with
their proposed loan amount. Let the prospect know how much their
minimum payment would be for the first year. Then calculate the
additional 7.5 percent payment for their second year. On a $1,000
minimum payment ($310,000 loan amortization at a one percent start
rate), their payment in year two will only go up to $1,075. It is
important to actually calculate the increase for the prospect,
instead of telling them it goes up 7.5 percent because this will
confuse them and they will think their rate is going up to 7.5
percent, which is not the case. Their payment is going up by 7.5
percent. There's a big difference.
Wrap up your sales pitch with, "Does that sound like something
you might be interested in?" If the prospect says yes, set the
appointment - never wait to set an appointment. They may have
questions, which you'll answer. Remember, because the customer
still has the option of paying the 30-year fixed, 15-year fixed or
interest-only, besides the minimum payment, they stay in control of
the loan.
Upon application, counsel them on ways to put the extra money
they save into investments. This is part of being a concerned
consultant, though I would stop short of specific recommendations.
If they ask a lot of questions or you get stuck, just mention that
you have some informative materials that explain the program in
depth, and you would like to get it out to them by e-mail or mail.
Send them our report or some other information about the loan, and
then follow up with a phone call. You will have a great chance of
booking them during that follow-up call.
Keep in mind that some people will be scared by this loan. If
so, do not push it! Remember, the key is for the right people to
buy this loan, not for you to hard sell it. If you present the
program as I've described, you will find a lot of people going for
it. The stage is set for this product to take off this year, after
years of real estate agents pushing interest-only loans. You can
either be in front of this one or behind it. But one year from now,
people will be calling you up and asking for it. This program is
hot and growing but it is not for everyone. It is up to you to sell
it correctly and if you do, you will reap the rewards!
Brian L. Peart is president of Nexus Financial Group Inc.
and publisher of the Top Producer training course. He may be
reached at (866) 355-1244 or e-mail
[email protected].
