The following is opinion and the debate is healthy. Consumers need options and in a consumer orientated society; it is amazing the lack of education on this particular mortgage product. In the old days, people loved whole life insurance until they learned about term insurance. It was a better product and is now the norm. This has been called the term insurance of the mortgage business.  Someday this may be the way most mortgages are done. The real question is why would someone do a mortgage any other way?  If you can’t sleep at night because it is an adjustable, then forget it. It is not for you. If you can’t stay in a mortgage three years, it is not for you. If you think you are going to pay your note undisturbed,  (very rare) it is not for you. If your going to sale your home within three years, we can help you have a soft prepay and waive the fee with certain lenders and certain restrictions.

 

    The traditional mortgage is a single payment choice and it is principal and interest. After deducting the interest, your lender invests for it’s benefit, the principal portion of your payment. The question you have to ask is: what will your return be from the investment of your money? The answer is nothing. The return is 0%!  What are you trying to accomplish? More equity? How do you build equity by refinancing a fixed rate note over and over? People are fixated on fix rates for no reason. Cheaper payments, building assets and paying the principal direct is the more innovative way to go. Greenspan has spoken out on several occasions about the problem with fix rate notes, both 15 and 30 years. He said “ Americans are wasting millions of dollars in the last decade on fixed rate notes.” He has this one-month arm product.

 

    You have to think outside the box and look at the big picture, which includes your entire financial picture. This would include your mortgage, your debt, your retirement, and your investment accounts. What is your return on your mortgage now? Is your lender helping you financially get ahead? The 30-year note is fixed, but it is fixed against you if you look at the math. You are mailing a high block payment to a lender. The question is: why? Why mail a lender more money that you have to, if the risk is reasonable with a one-month arm. It is adjustable, but outside America, adjustables are standard. In Nov. 03, 53% of Americans utilized an ARM product.

 

    Would you intentionally invest your money where it made a zero return for 30 years?  If your mortgage company called you and asked you would you rather have 100k cash in your bank or 100k equity, which would you take? The 100k cash could actually earn a return, especially invested in real estate. Most Americans have little saving and no money for a nest egg if they were laid off or got sick. How do you get a loan if you have no job? Cash in the bank is the theme.  The most financially responsible thing a family can do is to have cash to survive for a long rainy day. That is the essence of stability and security. Being house rich and cash poor is outdated and somewhat irresponsible.

 

    The sad fact is that most Americans are not prepared for their future. We are showing a way to start using the dollars in your traditional mortgage to start building and saving for your financial future. This is utilizing your mortgage as a financial tool and it is simply a better way of handling a mortgage. Put your mortgage to work for you instead of you working your entire lifetime for it. This program can provide you with a lower monthly payment, the opportunity to put your money to work and the opportunity to build assets. The time to save money is the first five years of your career and not the last five. Americans are going to need 90% of their income at retirement and are not prepared.

 

    The real question is why would you ever pay for years you are never going to use? The lenders love the 30 year fixed rate note, but do you? It worked great for our great grandparents, but they paid the note undisturbed for 30 years. They had one house and one job and never refinanced. They didn’t believe in starting over and banks didn’t like doing it. Part of our American icon for years has been to own their own home. The reality is that most Americans will never own their own home through a mortgage and a majority of their payments will be mainly interest. It is a detrimental cycle that needs to be broken. Awhile, refinancing over and over makes no sense and there has to be a better way. Lenders love it and broker churn loans, but is it what you want?  If you are going to refinance anyway, then you need to use the right product. Clients need to update their mortgage and only a handful of lenders in America are large enough and flexible enough to be able to offer this product. They are portfolio lenders and use their own money. Other lenders aren’t large enough to offer this flexibility.  The reason most people have never heard of the product is because only a few lenders offer it. It has been around for 15 years and is well established and there are millions of satisfied clients.

 

    There is no such thing as something for nothing and the positives are overwhelming. Lets discuss the negatives. The first discussion is negative am or deferred interest. This occurs when the minimum monthly payment is less then the current fully indexed interest due. The difference between the monthly payment and the interest due is the unpaid deferred interest, which is then added to the pay off balance. At 1.95%, which is a popular option on this program, you currently have no deferred interest at 4.34% as of 7/04. Interest only payment on 4.34% at 100k is $361. Mo. If you are paying 1.95% on 100k you are paying $370 the first year and there is no deferred interest in this example.  I have had this plan on my home for 3 years and never had a penny deferred interest. If it is an issue, and we give you your exact math for five years based on the current index rate, a client should not be greedy and take some of the saving and pay extra to the principal or do it on a bi-weekly. Most clients want the cash flow and since the payments are going up each year, the situation takes care of itself at the current rates. Based on my personal mortgage only, the balance is going down about 4.2% over five years and a 6.5% note would have had my balance going down about 6.2%. If I had applied the entire saving to the principal, and reversed the tables on the lenders, my balance would have gone down approximately 15% over five years. It is all about cash flow management.

 

    If you understand deferred interest, the fact there is a three-year prepay and the fact it is an adjustable, then you have all the negatives. It is what it is. There is no such thing as something for nothing. The biggest objection many have is that it seems too good to be true. That is not the case at all. A vast majority of prospects believe that the rewards outweigh the risk and that rates have been historically flat and that rates may go up a point or down a point, but they are comfortable with the five year preset concept. The most conservative of our clients will take all of the savings and pay the principal direct and do it on a bi-weekly and rates are not an issue.  A huge amount of cash will be going directly to the principal and they consider that a win/win situation.

 

    Other clients will invest the difference. If you are just going to spend the extra cash, it is not for you. After three years, a client has the option of going back into the starter rate again, so that is a positive safety net for most.  After five years a client will be at the full index rate on a monthly basis.

 

    The idea is to get ahead and jump start you’re saving account or accelerate your note. You are going to need to have a loan officer break the math down for you based on your exact situation and look at a five-year comparison of what you have now and this option.  E-mail us requesting a detailed proposal or give us a call at 661-492-9554 and let’s discuss the math. It is truly an exciting program.  .