Answers to common questions:
-
Why hasn't this loan been offered to the
public in the past? [answer]
-
What is my "credit line"? [answer]
-
How do I make payments? [answer]
-
Can I make extra lump-sum payments in
addition to my payroll deposit? [answer]
-
Should I put all of my available cash into
the mortgage? [answer]
-
Should I close my old checking and savings
accounts? [answer]
-
Are my payments FDIC insured? [answer]
-
How and when does my payment change? [answer]
-
What is the LIBOR index? [answer]
-
What happens when I pay off the loan EARLY?
[answer]
-
What happens if my home loses value? [answer]
-
Do I have to pay off my loan early? [answer]
-
How do I find out how fast my loan should
pay off? [answer]
-
What happens if I miss a payment? [answer]
-
How do I access the equity in my account for
expenses? [answer]
-
Do I need to change my spending habits? [answer]
-
Is there a maximum amount you can draw from
the account? [answer]
-
Isn't access to all that equity a bit
dangerous? [answer]
-
Can I use this loan as a platform from which
to make other outside investments? [answer]
-
What portion of the interest I pay is tax
deductible? [answer]
-
Won't paying less mortgage interest reduce
my tax deduction? [answer]
-
Why is the margin on this loan higher than
on other adjustable rate loans? [answer]
-
Why is there an annual fee? [answer]
Why hasn’t this loan
been offered to the public in the past?
It's simple. Banks have historically dominated the mortgage
market, and they make money by paying small interest rates
on deposits, and then loaning that money back out in the
form of mortgages, earning a profit on the “spread” between
their loan rates and deposit rates. If banks offered this to
their customers, their spread would disappear, and with it,
considerable profits.
What is my “credit
line”?
Your credit line is the maximum amount you can borrow under
the terms of the mortgage. This is usually higher than your
first draw amount, which will typically be used to pay off
an old mortgage (in a refinance) or complete a purchase
transaction. Your credit line will remain the same
throughout the 10-year interest-only period, and then it
will decline by 1/240 per month throughout the subsequent
20-year repayment period, reaching zero at the end of the
30-year term. You'll need to keep your principal balance
below this line throughout the term of the loan, meaning
that you'll at least need to be making progress against
paying down principal during the final 20 years.
How do I make
payments?
Every time you make a direct deposit of your payroll, or add
funds from another account, you're in effect making a
payment. Then at the end of each monthly statement period,
we add a charge for interest based on your daily principal
balance. This charge is simply added to your principal
balance. You actually only owe interest-only for the first
10 years; after that you'll be in the “repayment period”,
where your credit line starts to decrease regularly (1/240
per month) so that you do pay off in 30 years, and you'll
need to be making progress against both principal and
interest during that period.
Can I make extra
lump-sum payments in addition to my payroll deposit?
Anytime, and this can be beneficial. Moving funds from
low-interest deposit accounts or poorly-performing assets
into your mortgage will reduce your principal instantly, and
save you even more interest, allowing you to pay off even
sooner. And, you have access to the additional equity this
creates.
Should I put all of
my available cash into the mortgage?
While we do not recommend putting “all of your eggs in one
basket,” if your cash is earning less than your mortgage
interest rate, it could be an excellent idea to move a
portion of it into the mortgage. Instead of “earning” 1-2%
on your deposits, for example, you'll “save” 5-6% on your
mortgage. In effect, you get the same advantage the banks
now enjoy with your money. Again, you have access to your
available credit line if you need it.
Should I close my old
checking and savings accounts?
No, but to maximize the effectiveness of the product, you
will want to flow as much of your cash finances through this
account as possible. The more funds you “park” in the
account, the lower your daily principal balance, and the
more interest you save.
Are my payments FDIC
insured?
No. This is a line of credit mortgage, not a savings
account, and therefore not FDIC insured. You are paying down
your mortgage, not making a deposit in the traditional
sense. Years of traditional banking has trained us to think
we need to have a “pile” of money somewhere, when in
reality, the banks are using it to loan money to others. In
this new approach, you access your wealth in a completely
new way — it's in your real estate investment.
How and when does my
payment change?
The interest due on your loan may change monthly, based on
the LIBOR interest rate index.
What is the LIBOR
index?
The London Interbank Offered Rate Index (LIBOR) is an
average of the interest rates that major international banks
charge each other to borrow U.S. dollars in the London money
market. It is one of the most common indexes on which to
base mortgages.
What happens when I
pay off the loan EARLY?
If you pay off the loan early, you still have access to the
accumulated equity, up to your credit line amount, until
your 30-year term is complete. If you continue to make
deposits into the account, and your loan is paid in full,
those deposits will earn interest at a competitive rate.
What happens if my
home loses value?
Just like any mortgage, you owe the amount you've borrowed,
regardless of what happens to the value of your home. The
problem some people have when their home devalues is that
they end up owing more on the house than the house is worth.
However, since the Home Ownership Accelerator allows you to
pay down principal faster, you'll stand a better chance of
avoiding being “underwater” on your loan as compared to a
traditional loan.
Do I have to pay off
my loan early?
No. You can pay off over the full 30 years if you wish.
What happens if I
miss a payment?
The loan is ideal for people whose income might vary. During
the first 10 years, you only owe interest, which is
automatically added to your principal balance monthly, so
there's really no “payment” to make as long as your
principal balance stays below your credit line amount. The
only payment you need to make is to stay below your credit
line amount.
How do I access the
equity in my account for expenses?
Just like you access your bank account. You have online
access to view your account balances and transactions, and
you can access funds via check, ATM, EFT, ACH and bill-pay.
Do I need to change
my spending habits?
No. Generally that will not be necessary, and since more of
your income will be going towards principal, you'll likely
come out ahead even then. However, you'll find that if you
can find a way to trim expenses even more, you'll pay off
even earlier.
Is there a maximum
amount you can draw from the account?
You can draw up to your credit line; the amount you have
available is the difference between your principal balance
and the line amount.
Isn't access to all
that equity a bit dangerous?
As with any of your finances, you need to be disciplined.
You probably get several credit card offers each week, and
can easily open a home equity line of credit to access your
home's available equity. Any of which offer you the same
ability to get into financial trouble.
Can I use this loan
as a platform from which to make other outside investments?
Absolutely. Sophisticated investors will see it as an
opportunity to “borrow” money from their available equity
and “reinvest” it in an outside investment at a higher rate
of return, netting the difference between the two.
What portion of the
interest I pay is tax deductible?
Since this is a mortgage and since it represents the
acquisition debt on your property, under IRS publication
936, the interest you pay may be tax deductible; consult
your tax advisor for more guidance.
Won’t paying less
mortgage interest reduce my tax deduction?
Of course it will. Unless you're currently a renter, paying
a dollar in interest to get a thirty-cent tax deduction is a
no-win game. If maximizing your interest tax deduction
really made sense, you'd want to pay a higher interest rate
on your loans, right? So minimize overall interest and own
your home sooner.
Why is the margin on
this loan higher than on other adjustable rate loans?
The margin on this loan may be higher than that of other
loans because of the highly transactional nature of the
product, which has a cost. However, most borrowers will find
that the higher margin will have a minimal effect on the
overall payoff timing, particularly when compared to the
costs and lengthy payoff times for traditional loans.
Why is there an
annual fee?
Most mortgages do not have the ability to do transactions,
and traditional home equity lines of credit only let you
write a low number of checks (often with a minimum draw).
This is a mortgage which gives you full transactional
capabilities, which is what the annual fee helps offset.
Compared to the amount of interest you'll be able to save,
it's a relatively small fee.
|
