Check this Mortgage Out....

Discussion in 'Economics' started by ElectricSavant, Jun 9, 2006.

  1. Does this encourage frivolous spending behind the mask of accelerating your mortgage amortization flow?

    Having you house on the line for your grocery purchases, could be reckless.

    Would you spend more money than you normally would?....what if you lost your job?

    On the surface having your paycheck put into your mortgage upfront and then taking it out slowly might seem like more freedom with a better benefit...but again would this encourage you to increase your secured debt portfolio? and make it far too easy to overspend?

    There is a 5% cap to the start-rate (libor) so you could reach 12%....You need a 680 credit score and loan to value is 80%

    They have some simulators below....

    Michael B.

    P.S. From what I can figure out there is a monthly recast as this is not an interest only loan, but is a 30Y fully amortized...some of you mortgage professionals might need to correct me.

    P.S.S. And what about those months that you spend more than you direct deposit? Would this deceleration effect negate the acceleration effect?
  2. How does this work? Is the 30Y amortization extended one more month at the monthly recast, assuming that is how it works?

    If not what happens to amortization if half way through the loan you have a hospital bill and tap into it....would it be amortized for the remaining term of 15y? why is there amortization at all on this type of loan? Why not just an interest only HELOC...

    Michael B.
  3. What does this mean?..I think I answered one of my questions....

    4. 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.
  4. McCloud


    I believe this will benefit higher income people or those who spend less than they make the most. May do little for those who live paycheck by paycheck imo
  5. I checked out the simulator....not really...its the cash flow aspect of the thing...even if its even...but granted if you put into savings 10% of your income a month, it is even better.

    However if you pay down 7% debt with dollars that produce more income that would not be wise either...

    This is a flexible type of loan at higher rates and an annual fee....but would one spend more money with this type of flexibility?...and would this frivolous spending tied to the roof over your head be wise?

    The fact that your paycheck gets directly deposited into the mortgage and then dribbled out over the month from your access to the mortgage line of credit is the idea here.

    Michael B.

  6. I could imagine a commission paid person that has large fluctuations in salary and is paid from month to month at different amounts, could use this type of product to balance with...

    Michael B.
  7. How would a mortgage like this effect our economy if it became widespread?

    Any speculation?

    Michael B.
  8. McCloud


    I believe very few "disciplined" consumers may be able to utilize this the right way but over all it will provide even more "credit" to consumers and we all know where that could lead...

    I guess another creative financial vehicle to offer even more credit and liquidity after they exhausted cash out refi's and other means.

    Interesting to see how this all will end some day....
  9. They use a "reusable" 80% loan to value....So over a 30 year time period people could write their own loans...

    Interestingly the first 10Y of this product it is an interest only loan....

    I am still confused though ...what if in year 29 they take out 30K...will that have a one year amortization?

    Michael B.

  10. Chagi


    I can draw a graph for you later if necessary, but what is being described is that the full amount of the line of credit (e.g. $200,000) would be available for the 10 year interest-only period, and then the maximum amount available would start amortizing. For example, after your 11th year of holding the HELOC, you might only be able to access $190,000 (I didn't calculate that, just chose an arbitrary number less than $200K).
    #10     Jun 9, 2006