Posted on: 01st Feb, 2008 06:40 pm
we currently owe $268,000 on our 2 year old home that has an appraised value of $500,000. our monthly payment is $1,536 total. we just purchased some land for $160,000 and our intent is to build within the next year and sell the house we're currntly in. we are in a good location where average time on the market is 62 days for selling our current home. we close on the land at the end of the month and are looking for the best option to borrow the money to pay for the land which we can eventually pay off when we sell our house. our mortgage lender came up with the following refinance option:
i'm not sure if this is a "buy down" mortgage?
mortgage amount $400,000
desired loan term 360 months
current market interest rate 6.0% p&i $2,398.2
platinum preferred rate 7.0% p&i $2,661.21
payment differential x 6 months $1,578.05
pricing to investor .04
available subsidy $8,100
platinum monthly subsidy $1,350
platinum net mortgage payment $1,311
platinum payment equivalency 1.133%
customer tax rate 25%
platinum net taxable rate -0.617%
total tax savings $7,000
loan term if platinum subsidy applied to principal reduction 78.8 months
i'm not sure where the $8,100 available subsidy comes from?(is it added into our total loan amount?)
he described this as a way to get the money for our land at no cost out of pocket and we actually pay less than our current monthly payment.
we plan on selling our next house as well and building one more time after that.
is there any other suggestions as to what type of loan we should obtain to pay for our land? we don't have cash available for any type of downpayment.
thank you for your input!
i'm not sure if this is a "buy down" mortgage?
mortgage amount $400,000
desired loan term 360 months
current market interest rate 6.0% p&i $2,398.2
platinum preferred rate 7.0% p&i $2,661.21
payment differential x 6 months $1,578.05
pricing to investor .04
available subsidy $8,100
platinum monthly subsidy $1,350
platinum net mortgage payment $1,311
platinum payment equivalency 1.133%
customer tax rate 25%
platinum net taxable rate -0.617%
total tax savings $7,000
loan term if platinum subsidy applied to principal reduction 78.8 months
i'm not sure where the $8,100 available subsidy comes from?(is it added into our total loan amount?)
he described this as a way to get the money for our land at no cost out of pocket and we actually pay less than our current monthly payment.
we plan on selling our next house as well and building one more time after that.
is there any other suggestions as to what type of loan we should obtain to pay for our land? we don't have cash available for any type of downpayment.
thank you for your input!
Im going to stick by my previous comments.....This is a neg am loan.....the only loans that have a 1.25% rate are neg am.....if you pay the fully indexed rate of 7-7.25% you would not have neg am.......so the point is......get a lower rate on a traditional loan product......the "subsidy" comes in the form of either YSP......ie points paid by the lender to the broker.....which translates to a higher margin.......or in the form of financed points.......World Savings/Wachovia offers this option.....
So in a nutshell.....you probably have 50 years of expirence here.....(between all the pro's who have commented on this) and we are all telling you the same thing........when a lender starts using terms like platinum etc.....it is a sales tactic designed to decieve you.....I don't actually believe the LO you are dealing with understands the loan he is selling you......and or is hiding behind the "fancy" terms to mask the actual loan type.
So in a nutshell.....you probably have 50 years of expirence here.....(between all the pro's who have commented on this) and we are all telling you the same thing........when a lender starts using terms like platinum etc.....it is a sales tactic designed to decieve you.....I don't actually believe the LO you are dealing with understands the loan he is selling you......and or is hiding behind the "fancy" terms to mask the actual loan type.
just thought i'd post the actual email i exchanged with the lender regarding this loan.
we have a few concerns and some questions regarding the refinance loan proposal you presented us for a "platinum preferred customer" as listed below:
mortgage amount $400,000
desired loan term 360
current market interest rate 6.000% p&i $2,398.20
platinum preffered rate 7.000% p&i $2,661.21
payment differential x 6 months $1,578.05
pricing to investor 0.04
available subsidy $8,100
platinum monthly subsidy $1,350
platinum net mortgage payment $1,311
platinum payment equivalency 1.133%
customer tax rate 25%
platinum net taxable rate -0.617%
total tax savings $7,000
loan term if platinum subsidy applied
to principal reduction 78.8 months
1st, what type of loan is this exactly? (is it a heloc or an option arm with a 6 month libor index?)
this is a 30 year fixed rate mortgage with no prepayment penalty
is this a negative amortized loan? is there pre-payment penalties?
this is not a negatively amortized loan, nor does it include a prepayment penalty. we just ask that you do not pay it off for at least 4 months, because then we are out the closing costs and subsidy amount.
where does the $8,100 subsidy come from? (is it added onto our principal?)
the subsidy comes from us selling your loan at an above-market interest rate. the money comes from the bank, ex. countrywide, us bank, citibank, etc. the loan is basically a broker-sponsored buydown agreement; a much accelerated version of the one that banks have. so they are the ones providing the subsidy, it is just administered by us. None of the banks mentioned carry this product........There 2 lenders however that do....world savings and chevy chase......i am leaning towards chevy chase because of the min payment rate.....again masking the lender....to hide the actual terms of the loan.....
should we lock in a rate or float it until closing? (in terms of least expensive to us)
the rate will be locked in during the process; it has varied lately between 7-7.25% depending on market conditions, as well as the loan purpose (cashout refinance vs rate/term refinance). we're basically looking at an effective rate of 1.1% at the 7% note rate vs maybe 1.25% at 7.25%, so there is not much variance. the main goal of this program is to dramatically reduce your payments on a monthly basis, so the rate is not as important if you're talking about 7% vs 7.25%. lets apply a little common sense.....he is talking about a payment rates.....of 1.25% and quoting the correct paymen.....the payment is $1333.......the payment at the fully indexed rate of 7.25% is $2728......so 2728-1333=$1395..this is the amount of your neg am......your lo is lying to you.......it's that simple.....
we were told that the least expensive loan to take out to do this would be a 15 year frm with a combination of the highest rate and largest rebate. (or a 30 year for a lower payment). does this work for our situation in your opinion? (keeping our monthly costs near where they're at now).
the least expensive loan for you to take out for short or even long term financing is this program; you are talking about a rate of 1% or so vs rates that are much higher for longer term fixed rates as well as short term adjustable rates. .....once again this is a neg am loan....and because he has lied to you.....he or she has no other choice than to continue pushing it.......you can't borrow money at 1%.....if its to good to be true....it is........
others are telling us to take out a 1 year, 3/1, or 5/1 arm since we'll be paying it off with the sale of our house?
short term rates have run about equal to long-term rates lately; and with the platinum subsidy, it doesn't really matter since your payment rate is so low. especially if you plan on moving within a year or so. A 1 year arm will run you anywhere from about 3.5% to 4.75% depending on the points and fee's ltv etc......with no ppp.....so again caought in another lie......
you guys both know our situation and what we're trying to accomplish with paying for the land, selling our current home and building within the next year. we can't really afford to pay much more per month then we are currently ($1,550). we would love to have an option where we could borrow to pay off the land and remain in our current house while building and only have to move once. however, if to do this, we'll end up paying a significant amount more in the long run, we'd rather sell and rent while building.
could we also get a written list of lender charges and a gfe along with any loan quotes?
indeed, just let me know if these answers help you out and we will write the good faith estimate..they have a valid application by law they have to generate a gfe with in 3 days......and it has been longer than that there are no closing costs associated with this loan, which is another great benefit of it !..nonsense........there is always title,interest days.....etc.....get a gfe....and if it doesn't have that info......once again you are being lied too....... If you would like some other quoted of non-platinum loans, then we can also send those along. but again, to keep you in your home as affordable as possible, please take serious consideration of this program! the agreement for the subsidy will also be signed at the closing table, as well as a schedule of when the checks are to be made available to you!
thank you for the opportunity to serve you and to do this in the most cost-effective manner!
we have a few concerns and some questions regarding the refinance loan proposal you presented us for a "platinum preferred customer" as listed below:
mortgage amount $400,000
desired loan term 360
current market interest rate 6.000% p&i $2,398.20
platinum preffered rate 7.000% p&i $2,661.21
payment differential x 6 months $1,578.05
pricing to investor 0.04
available subsidy $8,100
platinum monthly subsidy $1,350
platinum net mortgage payment $1,311
platinum payment equivalency 1.133%
customer tax rate 25%
platinum net taxable rate -0.617%
total tax savings $7,000
loan term if platinum subsidy applied
to principal reduction 78.8 months
1st, what type of loan is this exactly? (is it a heloc or an option arm with a 6 month libor index?)
this is a 30 year fixed rate mortgage with no prepayment penalty
is this a negative amortized loan? is there pre-payment penalties?
this is not a negatively amortized loan, nor does it include a prepayment penalty. we just ask that you do not pay it off for at least 4 months, because then we are out the closing costs and subsidy amount.
where does the $8,100 subsidy come from? (is it added onto our principal?)
the subsidy comes from us selling your loan at an above-market interest rate. the money comes from the bank, ex. countrywide, us bank, citibank, etc. the loan is basically a broker-sponsored buydown agreement; a much accelerated version of the one that banks have. so they are the ones providing the subsidy, it is just administered by us. None of the banks mentioned carry this product........There 2 lenders however that do....world savings and chevy chase......i am leaning towards chevy chase because of the min payment rate.....again masking the lender....to hide the actual terms of the loan.....
should we lock in a rate or float it until closing? (in terms of least expensive to us)
the rate will be locked in during the process; it has varied lately between 7-7.25% depending on market conditions, as well as the loan purpose (cashout refinance vs rate/term refinance). we're basically looking at an effective rate of 1.1% at the 7% note rate vs maybe 1.25% at 7.25%, so there is not much variance. the main goal of this program is to dramatically reduce your payments on a monthly basis, so the rate is not as important if you're talking about 7% vs 7.25%. lets apply a little common sense.....he is talking about a payment rates.....of 1.25% and quoting the correct paymen.....the payment is $1333.......the payment at the fully indexed rate of 7.25% is $2728......so 2728-1333=$1395..this is the amount of your neg am......your lo is lying to you.......it's that simple.....
we were told that the least expensive loan to take out to do this would be a 15 year frm with a combination of the highest rate and largest rebate. (or a 30 year for a lower payment). does this work for our situation in your opinion? (keeping our monthly costs near where they're at now).
the least expensive loan for you to take out for short or even long term financing is this program; you are talking about a rate of 1% or so vs rates that are much higher for longer term fixed rates as well as short term adjustable rates. .....once again this is a neg am loan....and because he has lied to you.....he or she has no other choice than to continue pushing it.......you can't borrow money at 1%.....if its to good to be true....it is........
others are telling us to take out a 1 year, 3/1, or 5/1 arm since we'll be paying it off with the sale of our house?
short term rates have run about equal to long-term rates lately; and with the platinum subsidy, it doesn't really matter since your payment rate is so low. especially if you plan on moving within a year or so. A 1 year arm will run you anywhere from about 3.5% to 4.75% depending on the points and fee's ltv etc......with no ppp.....so again caought in another lie......
you guys both know our situation and what we're trying to accomplish with paying for the land, selling our current home and building within the next year. we can't really afford to pay much more per month then we are currently ($1,550). we would love to have an option where we could borrow to pay off the land and remain in our current house while building and only have to move once. however, if to do this, we'll end up paying a significant amount more in the long run, we'd rather sell and rent while building.
could we also get a written list of lender charges and a gfe along with any loan quotes?
indeed, just let me know if these answers help you out and we will write the good faith estimate..they have a valid application by law they have to generate a gfe with in 3 days......and it has been longer than that there are no closing costs associated with this loan, which is another great benefit of it !..nonsense........there is always title,interest days.....etc.....get a gfe....and if it doesn't have that info......once again you are being lied too....... If you would like some other quoted of non-platinum loans, then we can also send those along. but again, to keep you in your home as affordable as possible, please take serious consideration of this program! the agreement for the subsidy will also be signed at the closing table, as well as a schedule of when the checks are to be made available to you!
thank you for the opportunity to serve you and to do this in the most cost-effective manner!
good job cedric in pointing out all the lies.
i can't believe the liar had the nerve to talk about "above-market" rate in the same breath as "least expensive."
do these people really think they would be hurt by being honest? yes, they would lose business, but wouldn't their souls be warmer?
i can't believe the liar had the nerve to talk about "above-market" rate in the same breath as "least expensive."
do these people really think they would be hurt by being honest? yes, they would lose business, but wouldn't their souls be warmer?
I understand how this loan is expensive if I hang onto the loan for a long time (over 1 year), but for our situation it is inexpensive.
We will not have this loan for longer than 6 months.
The mortgage company gets a subsidy from the bank of $8,100.
They cut us a check of $1,350 each month on the 20th.
We pay the remaining $1,311 to cover the $2,661.21 mortgage payment.
The total interest paid to the bank is $13,971 over those 6 months, however we only pay $5,871 because of the $8,100 subsidy.
And the $1,311 payment we make each month is $200 less than our current mortgage.
This seems to be costing us less in the 6 months we will have the loan and there are no closing costs on our part.
(unless I am missing something?)
Kevin
We will not have this loan for longer than 6 months.
The mortgage company gets a subsidy from the bank of $8,100.
They cut us a check of $1,350 each month on the 20th.
We pay the remaining $1,311 to cover the $2,661.21 mortgage payment.
The total interest paid to the bank is $13,971 over those 6 months, however we only pay $5,871 because of the $8,100 subsidy.
And the $1,311 payment we make each month is $200 less than our current mortgage.
This seems to be costing us less in the 6 months we will have the loan and there are no closing costs on our part.
(unless I am missing something?)
Kevin
What type of a program is this? I don't understand the subsidy and why the lender would pay a part and ksteltenpohl would pay the remaining. Can anyone clarify this?
The mortgage company is telling me it's a broker sponsored buydown agreement but a more accelerated version of the one that banks have.
It's a 30 year fixed with no prepayment penalties.
It's a 30 year fixed with no prepayment penalties.
Again, according to the mortgage company offering this to me.....the subsidy is a payment the bank makes to the mortgage company to purchase the loan from them because it's at a higher than market rate. The bank does this thinking they will hold the loan long enough to recoup the purchase price (subsidy) and much more in interest.
i suppose if you are happy paying an interest rate higher than you would ordinarily have to pay, then this is the loan for you.
frankly, i am skeptical about all the language they use - "platinum" and "least expensive" and "above market" being among them.
your only concern appears to be the monthly obligation. clearly, you are willing to trade off the higher rate for the lower payment.
your original question seems to be moot. your arguments in favor of the financing arrangement eliminate the need for an answer that is unfavorable.
i wish you well in this endeavor.
frankly, i am skeptical about all the language they use - "platinum" and "least expensive" and "above market" being among them.
your only concern appears to be the monthly obligation. clearly, you are willing to trade off the higher rate for the lower payment.
your original question seems to be moot. your arguments in favor of the financing arrangement eliminate the need for an answer that is unfavorable.
i wish you well in this endeavor.
ksteltenpohl,
We have all warned that your broker is not being upfront with you. It IS a negative amortized loan and the subsidy will most likely go in the brokers pocket. Do you have a formal, notarized note from then stating that they owe you 8100?
Find out which lender they are going through and what the name of the program is. I will tell you if there is a prepayment penalty. At this point, I wouldn't trust what you were told, so I can look it up myself. Most brokers are set up with the same lenders, it's just a matter of working with someone that can explain the pros and cons so that you can make an informed decision. At this point in time, I would definately look for another broker, most likely they have access to the same lenders and products.
We have all warned that your broker is not being upfront with you. It IS a negative amortized loan and the subsidy will most likely go in the brokers pocket. Do you have a formal, notarized note from then stating that they owe you 8100?
Find out which lender they are going through and what the name of the program is. I will tell you if there is a prepayment penalty. At this point, I wouldn't trust what you were told, so I can look it up myself. Most brokers are set up with the same lenders, it's just a matter of working with someone that can explain the pros and cons so that you can make an informed decision. At this point in time, I would definately look for another broker, most likely they have access to the same lenders and products.
Run don't walk away from this broker. This is an OPTION ARM. The 1% is your minimum acceptable payment and the fully indexed rate is the 7-7.25%. The second warning sign is that by law them must issue you a Good Faith Estimate within 3 Days of pulling your credit and quoting your rates and fees for this loan program. There is no such thing as a 30yr Fixed rate loan where you have an effective rate of 1.1%. These guys should be reported. And last the reason they are not charging you any fee's is that they are making 'Rebate' from the lender which will cover your closing costs. THIS IS A NEG-AM loan, this is what you are getting with them don't let them tell you otherwise. A 30 yr fixed rate loan is just that with 1 rate period.
Looks like ksteltenpohl was sold on the option arm adjustable rate mortgage that the broker said was fixed rate (and a platnium rate to boot). I have Titanium rates, lol.
I have never heard the term 'subsidy' used in connection with a residential mortgage.
If the refinance held certain monies in escrow for the purpose of paying the principal, this might be clever -- but, it would be wholly wrong.
If your sole purpose is to pull cash to buy land, I'd consider a land lot loan instead. A good broker can locate this for you.
If your sole purpose is to pay the least amount of money possible on your current refinanced mortgage and build the new home is 9-12 months, then you might do well to buy the lowest start rate you can find on a Neg-Am loan. The one you're looking at might be fine, but I'd consider everyone's advice by looking elsewhere.
Right now, mortgage brokers are killing themselves in trying to make new and better connections with builders --tel the borker what you do, and their ears will perk right up!
Otherwise, pay what you can all all fronts --get a land lot loan, sell the house now, move into the apartment, get a construction loan with the lot being your Down Payment, and work the new Primary Residence.
GOOD LUCK!!!
If the refinance held certain monies in escrow for the purpose of paying the principal, this might be clever -- but, it would be wholly wrong.
If your sole purpose is to pull cash to buy land, I'd consider a land lot loan instead. A good broker can locate this for you.
If your sole purpose is to pay the least amount of money possible on your current refinanced mortgage and build the new home is 9-12 months, then you might do well to buy the lowest start rate you can find on a Neg-Am loan. The one you're looking at might be fine, but I'd consider everyone's advice by looking elsewhere.
Right now, mortgage brokers are killing themselves in trying to make new and better connections with builders --tel the borker what you do, and their ears will perk right up!
Otherwise, pay what you can all all fronts --get a land lot loan, sell the house now, move into the apartment, get a construction loan with the lot being your Down Payment, and work the new Primary Residence.
GOOD LUCK!!!
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