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Replies (20)
- John Corey, "Bank REO Solutions"
- Contributions:14
David,
What does it mean when you say "I offer a loan that pays principal first before interest"?
John Corey
What does it mean when you say "I offer a loan that pays principal first before interest"?
John Corey
- MtgBanker
- Contributions:1
Why pay off a loan early? With appreciation in Seattle not "bursting with bubble" as other markets have been doing, why not invest the money that you can save using an ARM or Pay Option product at a higher rate of return via a financial planner, rather than sinking it into your house? Too long we've been buying into our parents' idea that we've got to payoff our mortgages early (due party to the fact that their parents remember Ma and Pa lamenting over the depression when banks called in notes--something that our government doesn't allow anymore).
John- He means that traditional loans amortize interest payments first, then toward the end of your loan term they begin to actually pay off the principal. You can google "amortization" if you need more info.
John- He means that traditional loans amortize interest payments first, then toward the end of your loan term they begin to actually pay off the principal. You can google "amortization" if you need more info.
- pvagata
- Contributions:7
MtgBanker- Could you cite your information source that states that Seattle is not bursting with bubble and if you could, point me to a source that predicts that Seattle will not follow in the trails of the other markets? Also, as far as I am aware, depressions don't have to begin with banks calling in notes...
- Michael Mapes, "mmapes"
- Contributions:5
These financing solutions that are outlined here are very dangerous. No wonder home owners are losing their houses. Pitch products like these are not good for the average home owner and do not make sound financial sense. I could careless of the "exotic" features of pay option arms or loans where you deposit your entire paycheck into your mortgage account (actually a very scarty thought). The average and even above average consumer does not think this way. Unless you have a system to pro-actively manage this with the consumer you are not providing any long term benefit.
- Bill Black, "Lowrates"
- Contributions:30
My 2 cents-
As a mortgage broker we are fortunate to offer a variety of loan options for our clients. Each persons scenario should be carefully reviewed and I feel it is our responsiblity to educate the borrower on the options, benefits and the risk of each scenario then allow them to choose what works best for them.
I have completed the "exotic" loans aka "accelerator loan" as well as "hybrid option arms" and a large amount of "vanilla" 30 year fixed loans. Each loan fits the clients needs and they have referred their freinds and family to me expecting the same loan but after carefully reviewing their scenario we usually find the client needs are sometimes different then the ones that referred them to me.
I utilize a software product called mortgage coach that compares 4 scenarios and it covers everything a client should know about that specific loan and then they chose what fits their roadmap in life best.
PS
Most of my "hybrid option arms" aka "Exotic" loans (including one of my investment properties) are brokered into ABC- American Brokers Conduit which I beleive is your parent company MMapes. It's a great product...for the right client:)
As a mortgage broker we are fortunate to offer a variety of loan options for our clients. Each persons scenario should be carefully reviewed and I feel it is our responsiblity to educate the borrower on the options, benefits and the risk of each scenario then allow them to choose what works best for them.
I have completed the "exotic" loans aka "accelerator loan" as well as "hybrid option arms" and a large amount of "vanilla" 30 year fixed loans. Each loan fits the clients needs and they have referred their freinds and family to me expecting the same loan but after carefully reviewing their scenario we usually find the client needs are sometimes different then the ones that referred them to me.
I utilize a software product called mortgage coach that compares 4 scenarios and it covers everything a client should know about that specific loan and then they chose what fits their roadmap in life best.
PS
Most of my "hybrid option arms" aka "Exotic" loans (including one of my investment properties) are brokered into ABC- American Brokers Conduit which I beleive is your parent company MMapes. It's a great product...for the right client:)
- Michael Mapes, "mmapes"
- Contributions:5
Yes you are correct American Home is the parent of ABC. You are talking about the Power Arm loans if I am not mistaken. I did the very first power arm. It was a 5/1 ARM and has performed modestly up to now. I agree with everything that you stated. However my stance to the first two posts stand. I would campare them to Lending Tree and Quicken Loans for bait and hook advertising.
- aoskey
- Contributions:3
ive seen this presented.. Its compelling cause you do pay the mortg off quicker but they charge like 6k to even do it and basically its for a computer telling you to borrow from you equity line to pay you 1st loan off quicker.. Kinda confusing to sell to clients... Forget all that, invest your money and see greater rewards down the road.
- Greg Traub, "greg traub"
- Contributions:49
It all depends on one's risk tolerance, if your young and have plenty of disposable income, by all means start your retirement portfolio. At that stage in your life you'll be OK if the market turns and your investments stagnate or take a dive.
But for most americans paying down a mortgage without changing their spending habits (which is what the mortgage accelerator I'm familiar with does) is a great idea. The program itself is quite confusing, but the math principals are sound.... 6K is way overpriced though, I beleive it's sold for much less.
Think of it this way, you make 2,000 a month and your Mtg payment is 1000 a month, after other expenses you have 200/mo to invest a month. Assuming nothing changes in 30 years, your mortgage is paid off and you have a pretty penny sitting in the bank. Now say same situation only for 8-11 years you take that extra 200/mo and pay off your mortgage.....now the next 22-19 years you now have 1200/mo to invest. All depends on your timline I guess.
;)
But for most americans paying down a mortgage without changing their spending habits (which is what the mortgage accelerator I'm familiar with does) is a great idea. The program itself is quite confusing, but the math principals are sound.... 6K is way overpriced though, I beleive it's sold for much less.
Think of it this way, you make 2,000 a month and your Mtg payment is 1000 a month, after other expenses you have 200/mo to invest a month. Assuming nothing changes in 30 years, your mortgage is paid off and you have a pretty penny sitting in the bank. Now say same situation only for 8-11 years you take that extra 200/mo and pay off your mortgage.....now the next 22-19 years you now have 1200/mo to invest. All depends on your timline I guess.
;)
- Rhonda Porter, "rhondaporter"
- Contributions:20
How does this impact your ability to maximize your interest rate deductions with your income tax in relation to your acquistion mortgage?
- Greg Traub, "greg traub"
- Contributions:49
You still deduct all the interest you pay during the year, however each year as you pay off more and more of the principle, there is less and less interest deduction.
Depending on the client, and how much they really need their deduction, paying the mortgage totally off may not be the best move. However, I'd rather save 10,000 in interest than pay 10,000 in interest and get 2,000 back as a deduction. Still netting a loss of 8K.
Depending on the client, and how much they really need their deduction, paying the mortgage totally off may not be the best move. However, I'd rather save 10,000 in interest than pay 10,000 in interest and get 2,000 back as a deduction. Still netting a loss of 8K.
- Greg Traub, "greg traub"
- Contributions:49
The original poster I think put it the wrong way....at least if he's talking about the same program as I. You aren't paying your principle before you pay interest....no bank does that....Time value of money is practically a law of nature.
The program I know of uses a HELOC on top of your existing first mortgage to create a mathematical "paradox" (I think that describes it well) where in you start canceling out some of the interest you pay every month. You must use the HELOC in a specific, but easy, way and the program is basically what shows you how to maximize the paradox.
The program I know of uses a HELOC on top of your existing first mortgage to create a mathematical "paradox" (I think that describes it well) where in you start canceling out some of the interest you pay every month. You must use the HELOC in a specific, but easy, way and the program is basically what shows you how to maximize the paradox.
- Dave Grapensteter, "Dave Grapensteter"
- Contributions:6
This is a mortgage accelerator program...You make the same payment each month...however, because your principle loan amount is "reduced" by your additional cash you have deposited in your line-of-credit checking account...You pay less interest and more of your mortgage payment is allocated toward your priciple. It is that simple. Because of this people will pay down their mortgages faster...
- Suburban Renewal
- Contributions:10
It's not simple. It's flawed. You are expecting the consumer to not act like a normal person. This may be a great loan - but for a very select few. Very select few.
Just like with a Payment Option ARM might be a great loan. We can all run the numbers and determine that if a borrower paid the minimum payment required (Neg Am) and took the difference between that and what they might have had to pay on principal and interest for a regular conforming loan and invested that into the investment of their choice and received an average rate of return they would be miles ahead of the "sucker" paying on a 30 yr fixed.
But there's a fly in the ointment. records indicate that of the owners of these POAs 75% make only the minimum payment, they've run up their credit cards, they've bought new boats, and you can guess that none of them have been investing the difference in anything other than JetSkis and vacations.
Sign the typical borrower up for one of these loans and you are saying they won't be human?
Mark Flanders wrote an article recently,
http://soundbiteblog.com/2007/07/04/equity-acceleration-programs-are-they-better-for-the-borrower-or-the-bank/
While the idea may be great, the human is the flaw in the equation.
Human nature is not something we can change or regulate.
Like Mark said, "The biggest advantage to many Equity Acceleration Programs is to the Lender and the Loan Officer."
Just like with a Payment Option ARM might be a great loan. We can all run the numbers and determine that if a borrower paid the minimum payment required (Neg Am) and took the difference between that and what they might have had to pay on principal and interest for a regular conforming loan and invested that into the investment of their choice and received an average rate of return they would be miles ahead of the "sucker" paying on a 30 yr fixed.
But there's a fly in the ointment. records indicate that of the owners of these POAs 75% make only the minimum payment, they've run up their credit cards, they've bought new boats, and you can guess that none of them have been investing the difference in anything other than JetSkis and vacations.
Sign the typical borrower up for one of these loans and you are saying they won't be human?
Mark Flanders wrote an article recently,
http://soundbiteblog.com/2007/07/04/equity-acceleration-programs-are-they-better-for-the-borrower-or-the-bank/
While the idea may be great, the human is the flaw in the equation.
Human nature is not something we can change or regulate.
Like Mark said, "The biggest advantage to many Equity Acceleration Programs is to the Lender and the Loan Officer."
- Dave Grapensteter, "Dave Grapensteter"
- Contributions:6
You are not doing anything different except essentially opening a new checking account and keeping your money in it...your money is working for you. How is that "flawed" and "not acting like a normal person". This has nothing to do with a pay option arm.
- Suburban Renewal
- Contributions:10
It isn't a POA, it's a Glorified HELOC. - And that part is ok. As long as I don't also have buy software on top of it. And I know it's a ARM going into it.
My problem is that you are selling these loans to the same people who you were selling POA's to. While the POA had a great hook (minimum payment), this one has a similar hook (payoff your home fast without changing a thing).
I say "you " as in the general sales force, not specifically you Dave.
So, if this is the same general public that you sold the POA to. And study after study has proven that they as a group cannot show the proper discipline to manage the extra disposable dollars making the minimum payment gave them...
How in the world do you honestly expect them to manage a HELOC, especially when they have equity.
That's my issue.
This is good loan for the right person. But you are not focusing your marketing towards that right person. Instead, this is being sold as the holy grail of loans to everyone.
To make this work like the videos and presentation say, the buyer would have to be a very disciplined individual. You'll agree. You'll also tell me that these people are everywhere. I'll say that may be true in theory but I point to the masses that were sold the POA. The masses who are now facing a recast? The same masses who paid the minimum payment each month. Who bought cars, boats and vacations with the extra money in their pockets.
Weren't they also the disciplined ones?
If they are not, please explain how you are making sure they are different.
I'm not questioning your particular ethics. I don't have a problem with the loan itself. I have a problem with the marketing and selling of this loan.
(I didn't want to get into a conversation about why a person might want NOT to payoff early and the tax deductibility. That's fodder for another topic, and Rhonda already touched on it)
My problem is that you are selling these loans to the same people who you were selling POA's to. While the POA had a great hook (minimum payment), this one has a similar hook (payoff your home fast without changing a thing).
I say "you " as in the general sales force, not specifically you Dave.
So, if this is the same general public that you sold the POA to. And study after study has proven that they as a group cannot show the proper discipline to manage the extra disposable dollars making the minimum payment gave them...
How in the world do you honestly expect them to manage a HELOC, especially when they have equity.
That's my issue.
This is good loan for the right person. But you are not focusing your marketing towards that right person. Instead, this is being sold as the holy grail of loans to everyone.
To make this work like the videos and presentation say, the buyer would have to be a very disciplined individual. You'll agree. You'll also tell me that these people are everywhere. I'll say that may be true in theory but I point to the masses that were sold the POA. The masses who are now facing a recast? The same masses who paid the minimum payment each month. Who bought cars, boats and vacations with the extra money in their pockets.
Weren't they also the disciplined ones?
If they are not, please explain how you are making sure they are different.
I'm not questioning your particular ethics. I don't have a problem with the loan itself. I have a problem with the marketing and selling of this loan.
(I didn't want to get into a conversation about why a person might want NOT to payoff early and the tax deductibility. That's fodder for another topic, and Rhonda already touched on it)
- Dave Grapensteter, "Dave Grapensteter"
- Contributions:6
First of all, I believe the POA should not be sold to anyone unless they know what they are doing. I do not sell these ever because I agree with you that VERY FEW people will actually benefit...Most people will just get into trouble with POA's.
I believe the Mortgage Accelerator should be used when people have a good fixed rate 1st mortgage. If they do not have a good fixed rate 1st, they should be put into one if possible....Aside from that, If the HELOC is setup and NOT used, you are not paying interest on anything. The banks are hoping that people will use the HELOC and they will make some $$ on the deal...I completely agree that many people will probably not be disciplined about it and draw $$ from the HELOC. However, it does not take much discipline to deposit your money into a new checking account and pay bills from it as most people already do....Yes, to maximize the savings people would want to leave as much of their money in the account that they can and pay bills on the due dates but if they pay bills before the due dates or just leave any extra savings in that account from month to month they will still see a great benefit.
I believe the Mortgage Accelerator should be used when people have a good fixed rate 1st mortgage. If they do not have a good fixed rate 1st, they should be put into one if possible....Aside from that, If the HELOC is setup and NOT used, you are not paying interest on anything. The banks are hoping that people will use the HELOC and they will make some $$ on the deal...I completely agree that many people will probably not be disciplined about it and draw $$ from the HELOC. However, it does not take much discipline to deposit your money into a new checking account and pay bills from it as most people already do....Yes, to maximize the savings people would want to leave as much of their money in the account that they can and pay bills on the due dates but if they pay bills before the due dates or just leave any extra savings in that account from month to month they will still see a great benefit.
- Greg Traub, "greg traub"
- Contributions:49
Mike, Where have you seen this program being marketed to people on Option ARM's? The one I'm talking about is from United First Financial.
This program won't even work for people on POA's. The program (NOT A LOAN!) is for the average person that doesn't spend more than they earn....period! As long as someone makes more than they spend the program works. Whatever type of mortgage the person has now works WITH the program, no need to refinance. The function of a POA is to add principal to your loan, and the accelerator is to reduce the principal, If you have both your just standing in place.
This program has NOTHING to do with option ARM's though, so I don't know why that keeps coming up?
YES you must open a HELOC for the program to work. And to open that HELOC you need to have equity in your home already. The difference between a HELOC and a POA is that you are only charged a higher rate on the part of the HELOC that is used....and when you follow the program, that balance will be VERY MINIMAL. If someone goes out and uses the entire line of credit, they'll be screwed....the program is still sound, not it's fault someone saw they could qualify for $XX,XXX in credit and then goes out and spends everything.
I actually think the program will help people be more disciplined as it shows you the true cost of blowing money vs. paying off a mortgage.
Other than that thinking that people aren't disciplined enough to use the mortgage accelleration program is like saying people aren't disciplined enough to spend less than they make......(I know I know, some people are idiots and do spend more than they make until they max their credit....the program would be bad for people like that with NO control
This program won't even work for people on POA's. The program (NOT A LOAN!) is for the average person that doesn't spend more than they earn....period! As long as someone makes more than they spend the program works. Whatever type of mortgage the person has now works WITH the program, no need to refinance. The function of a POA is to add principal to your loan, and the accelerator is to reduce the principal, If you have both your just standing in place.
This program has NOTHING to do with option ARM's though, so I don't know why that keeps coming up?
YES you must open a HELOC for the program to work. And to open that HELOC you need to have equity in your home already. The difference between a HELOC and a POA is that you are only charged a higher rate on the part of the HELOC that is used....and when you follow the program, that balance will be VERY MINIMAL. If someone goes out and uses the entire line of credit, they'll be screwed....the program is still sound, not it's fault someone saw they could qualify for $XX,XXX in credit and then goes out and spends everything.
I actually think the program will help people be more disciplined as it shows you the true cost of blowing money vs. paying off a mortgage.
Other than that thinking that people aren't disciplined enough to use the mortgage accelleration program is like saying people aren't disciplined enough to spend less than they make......(I know I know, some people are idiots and do spend more than they make until they max their credit....the program would be bad for people like that with NO control
- Jim Collins, "Co3M"
- Contributions:55
I call it mortgage payment efficiency software. And I recommend UFF.
Does the "mortgage acceleration" company being discussed here require refinancing through them? And are they pushing exotic loans? Exploding Option ARM's for example?
UFF does not broker loans, they only sell the software.
With UFF, discipline does not seem to be a big issue. The software is easy to use and educates the homeowner in the true cost of every purchase they make. Whether that purchase is a vacation, a large screen TV, or a new wheel chair for a disabled child or aging parent, the expenditure is calculated against the total cost of the mortgage and the software shows precisely how much extra mortgage interest will be paid for, due to that expenditure. So the software actually instills discipline.
What concerns me are the loans themselves.
If a "mortgage acceleration" company requires an exotic loan, or even a 30 year fixed, are those loans compliant or predatory?
I am the CEO of a consumer advocacy organization. Would it surprise any of the mortgage brokers here that as much as 80% of the home loans my company audits have one or more material or serious Truth-in-Lending violations? More and more brokers and lenders are being subjected to our forensic Truth-in-Lending audits and being sued for the many consumer law violations we find.
The brokers I recommend, affiliate with my company under the brand name TrueCare Lending (TM) and agree to have their preliminaries audited in advance. The lender's closing documents also get audited within one business day of settlement to ensure the borrower receives a Truth-in-Lending Compliant Loan, or TLC-Loan (TM).
The borrower then adds the UFF software (which usually pays for itself in a few months) on top of the TLC-Loan.
Our clients get educated from all angles, a more holistic, transparent approach to mortgage lending that is long over due, and UFF fits right into our Truth-in-Lending mission.
Does the "mortgage acceleration" company being discussed here require refinancing through them? And are they pushing exotic loans? Exploding Option ARM's for example?
UFF does not broker loans, they only sell the software.
With UFF, discipline does not seem to be a big issue. The software is easy to use and educates the homeowner in the true cost of every purchase they make. Whether that purchase is a vacation, a large screen TV, or a new wheel chair for a disabled child or aging parent, the expenditure is calculated against the total cost of the mortgage and the software shows precisely how much extra mortgage interest will be paid for, due to that expenditure. So the software actually instills discipline.
What concerns me are the loans themselves.
If a "mortgage acceleration" company requires an exotic loan, or even a 30 year fixed, are those loans compliant or predatory?
I am the CEO of a consumer advocacy organization. Would it surprise any of the mortgage brokers here that as much as 80% of the home loans my company audits have one or more material or serious Truth-in-Lending violations? More and more brokers and lenders are being subjected to our forensic Truth-in-Lending audits and being sued for the many consumer law violations we find.
The brokers I recommend, affiliate with my company under the brand name TrueCare Lending (TM) and agree to have their preliminaries audited in advance. The lender's closing documents also get audited within one business day of settlement to ensure the borrower receives a Truth-in-Lending Compliant Loan, or TLC-Loan (TM).
The borrower then adds the UFF software (which usually pays for itself in a few months) on top of the TLC-Loan.
Our clients get educated from all angles, a more holistic, transparent approach to mortgage lending that is long over due, and UFF fits right into our Truth-in-Lending mission.
- Norm D Plume, "America Needs Nixon!"
- Contributions:1670
??????
- Rudi Hofmann, "LUXURY HOME LOANS CA"
- Contributions:7435
Norm,
Why did you bump this last posted Aug, 2007 thread. Is it because CMG has revived their HOA?
Why did you bump this last posted Aug, 2007 thread. Is it because CMG has revived their HOA?
How to payoff Mortgage early
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- 0.0/5.0
- (no reviews)
Contributions:16I offer a loan that pays principal first before interest and has a built-in checking account features so that you can submit your entire pay-check directly into your home, paying the loan balance down at an accelerated rate while maintaining access to those funds. That means you can pre-pay the loan down as aggressively as you want without parting with your money permanently.
The loan computes the interest charges according to your daily balance, so less interest is billed because your balance is lower each day. You could pay off in half the time.
Watch the short 5-min Movie www.reddsrealty.com
contact me at 760-871-1625 for details
David Darby
Mortgage broker
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