Mortgages Negative mortgages are back with us – InsuranceNewsNet

Choose a payment. ARM payment option. Or how about a negative setting?

Do you remember some of the big players like World Savings, Mutual Bank of Washington, Great Western BankHome Savings of America and the likes of Wachovia Bank start those cheap mortgages back then?

Fourteen years ago it ended. Negative adjustable rate mortgages allowed borrowers to make a partial or minimal payment on the house, with the unpaid portion being added to the mortgage balance. The balance could grow up to 125% of the original loan amount.

Never again. Never again would mortgage lenders have the nerve to peddle this pipe dream of largely unsustainable home financing. Or would they?

San Diego-based Axos Bank launches the deferred interest loan of the future.

“This mortgage will blow your mind,” according to its marketing campaign.

This adjustable rate mortgage product is very different from older negative amortization mortgages, according to James ShoopFVP National Sales Director at Axos Bank. The maximum negative amortization, or increase in loan balance. is around 110% (compared to a high of 125% during the 2000s), according to Shoop.

“It can be a way to break inflation,” Shoop said.

Additionally, underwriting is much more conservative than it was during the crisis, Shoop said.

Income verification and a minimum credit score of 700 are required. Debt ratios (total home payment and monthly bills divided by monthly gross income) are capped at 52%, assuming the highest possible mortgage balance and payment after five years.

Here is a payment com

parison: The sale price of a principal residence is $1.7 millionwith a minimum down payment of 40% or $680,000. The loan amount is $1,020,000. The rate of the mortgage note is 5.25% for the first five years. Property taxes, home insurance, and HOA are required, but are not considered in this example.

A fully amortized principal and interest payment would be $5,632.

In comparison, if you make the minimum payment of $2,337 at a deferral rate of 2.75% (i.e. the Note rate less 2.5%), the difference between this minimum payment and the fully amortized payment is $3,295.

This deferred payment would be added to the loan balance, according to Shoop. Thus, you would have a new balance of $1,023,295 in the second month.

The deferred interest portion ends after five years, or 60 months.

If the borrower makes the minimum payment for all 60 months, they could see a dramatic increase in payment at month 61.

It is difficult to calculate exactly what this additional payment would be since it is a variable rate mortgage. Contractually, the rate of the mortgage note could increase by up to 5% compared to the starting rate.

Negative amortization mortgages aren’t illegal, says mortgage lawyer Richard Horn, partner at Garris Horn. Horn worked at Consumer Financial Protection Bureau leading its legal team and creating consumer disclosures based on the Dodd-Frank Act.

“You have to take additional steps to prove your ability to repay (negatively amortized mortgages),” Horn said.

But it’s similar to the kinds of exotic lending that led to the 2007 mortgage meltdown.

According to CFPB.

If you’re looking for a type of lower mortgage payment to protect against inflation, you might consider an interest-only mortgage as an alternative.

I found a 30-year variable rate purchase mortgage with an interest rate of 3.875% for the first five years. Payment of interest only is $3,294.

Compare that to Axos’ negative adjustable rate of 5.25% for borrowers making the minimum deferred interest payment.

Shoop said the deferred interest payment could be good for anyone with fluctuating incomes, such as lawyers, real estate professionals and those whose income is based on commissions.

I suggest you carefully review the terms of this program and the worst amortization schedule with your mortgage originator and financial advisor to fully understand what you are getting yourself into.

Full disclosure: I am a former client of Axos Bank mortgage broker when called internet bank.

I recently applied to be a client.

Freddie Mac rate news: The 30-year fixed rate averaged 4.72%, 5 basis points higher than the previous week. The 15-year fixed rate averaged 3.91%, 8 basis points higher than the previous week.

the Mortgage Bankers Association reported a 6.3% decrease in mortgage application volume compared to the previous week.

Conclusion: Assuming a borrower obtains the average 30-year fixed rate on a $647,200 loan, last year’s payment was an incredible sum $590 less than last week’s payment $3,364.

What I see: Locally, well-qualified borrowers can get the following fixed rate mortgages without points: A 30-year FHA at 4.25%, a 15-year conventional at 4.125%, a 30-year conventional at 4.875 %, a one-year conventional high-balance 15 ($647,201 for $970,800) at 4.675%, a conventional 30-year high balance at 5.375% and a 30-year buy jumbo at 4.5%.

Eye-catching loan of the week: a 30-year revisable mortgage, blocked for the first 10 years at 3.75%, with 1.25 points.

Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or [email protected]. His website is hypothecaire.com.