Introducing the 0.25% Mortgage Loan
Author: Joshua Dorkin • URL: http://www.biggerpockets.com/September 1st, 2006 •
LEI Financial, a mortgage lender in California and Arizona is launching a new mortgage program that is unlike anything I’ve heard of, offering 0.25% Interest Rates.
According to LEI, “This loan gives the borrower a fixed interest rate of .25% for the first five years. The borrower pays the interest only for their monthly minimum payment for these first 60 months. . . It is a hybrid adjustable-rate mortgage, or ARM, designed for people who want to use the equity in their home to increase their cash flow. The minimum payment of the loan will be the fixed-interest only amount for the first five years of the loan, and then the borrower will pay the interest only payment based on the interest rate of the outstanding balance. This interest only period will last for the first 10 years of the loan.”
I’m all for creative financing, and this sounds like a great program for educated buyers/investors, but I fear that many people will get lured into buying otherwise unaffordable properties with loans like this one.
What do you think?
Second Mortgage Loans for those with bad credit who wish to use more money in investments.
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Joshua Dorkin
Charles Feldman
Ted Karsch.
Richard Warren
sounds like a way for a company that is crooked to continue to fleece the state of california with promises of rates and payments that just aren’t true…
Interesing comments, Jim. Is there something that you know that we don’t? Please let us know more. Thanks.
a .25% start rate vs a 1.25% brings your payment on a $200,000 mortgage to $666.50 vs $576.71 - this means you will defer more interest to the back end of the loan…my guess is that they are selling the payment only and i doubt they are even explaining the function of an option arm or the pitfalls if one uses only the minimum payment as a solution to a cash-flow problem. it is a powerful loan and can do great things if used and sold correctly. however, moving a start rate (usually only applicable to the first month in regards to how it affects your deferred amount) lower, indicates they are trying to grab people that are only concerned with payments. those are the people that are in over their heads and will not take those payment savings and invest or purchase other assets, but they will use that money for depreciating assets (cars, clothes, trips). when they hit the recast period and have not improved their situation, they will be forced to pay the adjustable payment (ammortizing 30 year - variable too!) and they will have not increased their disposable income, saved any money and in a cool market - they will have not gained anymore equity. a lot of companies are slinging these loans with only the thought of closing deals and not educating their clients. this is the best loan available today - however, many are selling this under another premise….
I agree with your completely. Great analysis of the situation.
Jim,
You are exactly right. This loan could be dangerous for someone that isn’t properly educated and doesn’t intend to use this loan for cashflow investment purposes. The issue with the concern that you have raised is that it is very very difficult to qualify for the .25% loan. You must have immaculate credit and a further impressive LTV and DTI. So, simply in the model of this program, most of the wrong people wouldn’t even qualify.
As you’ve also said; this loan should not be sold by a company that doesn’t have the infrastructure and know-how to use the cash savings that is created. We have 5 departments: Mortgage, Financial Services, Mexico, Commercial, Real Estate all with the same goal in mind. We show our customers how to use the additional cash flow to create a whirlwind of leverage, otherwise known as the Velocity of Money. The .25% loan is only one piece of the puzzle.
Does anyone know if this is their own securitized product, or if there are investors buying it? If so, who?
It never ceases to amaze me how everything is so much cheaper in the USA than it is in the UK. We have got used to all sorts of consumer products being around 50% cheaper across there but did not realise until reading this post that you guys have incredible deals on mortgages too! Wish I could move to America!
It never ceases to amaze me how everything is so much cheaper in the USA than it is in the UK. We have got used to all sorts of consumer products being around 50% cheaper across there but did not realise until reading this post that you guys have incredible deals on mortgages too! Wish I could move to America!
Now is really not the time to go into A Negative Amortization Mortgage. Find out what the monthly payment would be after the Negam portion of the mortgage expires and make sure you can pay it. Negams are what foreclosures are made of.
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Beware of scams. The general rule is to pay a shorter term to reduce interest you need to pay.
What is the old adage? If a deal seems to good to be true… it probably is. We do not have this type of loan in the UK but we have had similar schemes that appear to be great on the surface, but can have a very nasty sting in the tail.
¿too good to be true? Interesting anyway,
Thanks for the info
Another GREAT product for the well informed and the DEVIL for a borrower that gets in over their head!