Introducing the 0.25% Mortgage Loan

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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?

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Joshua Dorkin

Joshua Dorkin (@jrdorkin, Google+) founded BiggerPockets.com when he saw a need for free, trustworthy information about real estate investing online. Over the past 12 years, Josh has grown the site from self-funded hobby to full-time job and passion. Today, BiggerPockets brings together over 600,000 members, housing the world’s largest library of real estate content, iTunes’ #1 real estate podcast, and an array of analysis tools, all geared toward helping users succeed.

14 Comments

  1. 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….

  2. 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.

  3. 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!

  4. 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!

  5. 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.

  6. Pingback: Mortgages News » Blog Archive » Some Useful Resources

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