The mortgage market changes constantly. To meet the needs of consumers the mortgage industry offers new or unique programs that you may only hear a little about.

This section contains information regarding new mortgage programs available. I will try to explain, what these programs are, how they work and what the benefits and draw-backs are. Hopefully you will gain enough insight into them to make an educated decision regarding your choice of home financing.

You may have heard a lot about this type of mortgage, when in-fact, it is not a type of mortgage but a method of payment for your mortgage. Almost any mortgage can be paid bi-weekly. It is not restricted to fixed rate or adjustable mortgages and availability is usually determined by the company servicing your mortgage loan. Most mortgages are due on the first of the month and late after the fifteenth. This varies from mortgage company to mortgage company, but it holds true for most. The bi-weekly mortgage is paid every other week, catering to those who might get paid by their companies under the same arrangement. You typically pay one half of the monthly required payment every two weeks. By the end of the year you will have paid twenty six half payments. This is equivalent to pre-paying your loan by one additional payment per year. This is the other attraction to this loan. You will pre-pay your loan, hence saving money on interest. You can arrange for this method of payment in several ways. You may request this method of payment from your mortgage company when you apply for a loan. They may also suggest it before or during your closing (settlement). Most mortgage companies, since they charge extra fees and earn income from this, will offer it as a method of payment after you start making payments. There are also companies that are unrelated to your mortgage company that will set this up for you. They will take your payments every two weeks and forward the payment to your mortgage company once a month. They will, at the end of the year, also apply the additional payment accrual to your balance. The effective result of this is a reduction in interest paid and a shorter term for your mortgage. A typical thirty year loan will be paid off in about nineteen years.


Please understand the costs involved with setting up this method of payment. As with everything, some programs are better than others. You may receive an offer that ends up costing you almost as much as you save. If you can make the additional payments and you like the alternative method of payment, this could work for you.

This is also an option available on some loans. Most of the lenders that offer this longer amortization term, do so on their Adjustable Rate Mortgages. The longer term allows for a lower payment and usually the consumer can qualify for a larger mortgage. The difference in payments is this: on a 30 year loan at 8% for $100,000, the principal and interest payment is $733.76 per month. On a 40 year loan the payment is $695.31. Over the life of the loan, you will pay $69,595.20 more for the longer loan. In the first five years there is only a marginal difference between the 30 year and the 40 year amortizations. For the 40 year loan, you will pay $41,718.60 in payments and have a balance of $97,895.25. On the 30 year loan, you will pay $44,025.60 and have a balance of $95,069.86. The difference is $518.39 less for the 30 year loan.  Over ten years, the 30 year loan is better by $2,420.81 because the payoff is that much lower.  With a minor difference in the first 5 years and a lower payment, you can see why folks might be interested in this program.  Of course, I am comparing only the amortization terms.  The rates may not be the same and when you are talking about adjustable rate mortgages, you need to understand completely the other features and costs associated with the loan program.

I don’t have a lot of information here regarding reverse mortgages, but for a brief description, I can help. A reverse mortgage is supposed to be the answer for folks who have a reduced income, but a lot of equity in their property. The homeowner takes out a new mortgage based upon the value of their home and the amount they want to get as a monthly income. The borrower does not make monthly payments, but rather receives monthly installments. The loan continues until a set time in the future. Most of these are set for elderly folks who will have the loan paid off from either the future sale of the property or by their heirs. These loans are not available through every lender, but you can find more information on Fannie Mae’s web site and FHA’s website. They have a list of lenders who offer these programs.

The lending industry has long been offering home equity loans. The traditional loan would be available up to 80% of the value of your home. If your home were appraised at $100,000, and you owed $60,000 on a first trust, you could borrow $20,000. Take 80% of $100,000 or $80,000 minus the $60,000 first trust. Now you can find loans that will lend you over the value of your home as well. FHA has long offered the Title One program that would lend money for home improvements regardless of the value of your home. This was considered by many to be the first above equity loan. As new loans from traditional sources became scarce in the mid-1990′s, lenders were looking for other ways to lend money. These above equity loans offered a new resource with great returns. You will not find really low rate loans that let you borrow more than your house is worth. The rates on these loans will most likely be lower than your credit cards, but not much. The interest may be tax-deductible, at least up to the value of your home and the payments on one of these versus the other debts you are paying on will probably be lower because the terms are longer. Make sure that you understand the rate and fees that you will be paying OVER THE LIFE OF THE LOAN. You can pay less per month and a lot more over the term overall. These loans are also priced based upon credit scores. If you have a lot of debt to pay off, usually, you will have a lower score and will pay a higher rate. Once you pay off your debt, you may be able to refinance down the road to a better rate.

Scores range from the mid 400s to 900. A good score is above 680. A great score is in the high 700s. Scores below 600 will have difficulty obtaining loans. Most loan programs use credit scoring to determine eligibility for a program and often, the pricing as well. Your credit score is determined by a number of factors including you payment history, length of credit history, amount of credit available and recent attempts to obtain credit. The popularity of credit scoring has increased as a way to quantify you for a loan rather than qualify you for a loan. This allows computers to make most of the decisions human underwriter used to make. This has reduced the cost and time it takes to get a loan. a recent study of loans over the last 20 years suggested that the primary determinate of delinquency was the credit score. Loans whose borrowers had a score of 580 or lower were delinquent on 1 of 8 loans. The delinquency rate was reduced on loans with borrower scores above 620 to 1 in 1000 and above a 720 score, the rates plummeted to 1 in 13,000. This was regardless of other traditional underwriting criteria like size of down payment, length of job history, seasoning of funds and whether a gift was used. Credit scoring, for now, appears to be the best way to determine if a borrower will be likely to default on a mortgage.

To get a your credit score, our sponsor will run your credit report and go over the information with you. You can also contact the credit bureaus directly:

Equifax at 1-888-685-1111 or www.equifax.com

Experian at 1-888-397-3742 or www.experian.com

TransUnion at 1-800-267-1440 or www.transunion.com

Adjustable rate mortgages are tied to many different indices. The most popular index on the West coast is the one tied to the 11th District Cost of Funds. The stability of this index over the years has made it a popular program with consumers. The 11th district cost of funds is the weighted average of the member banks’ in California, Arizona and parts of Nevada cost of money. The money they have in certificates of deposit to the interest checking accounts are included. Because it is a "savings" index instead of an auction index, it reacts less to market volatility.

The index alone does not determine the features of a loan. When you discuss a COFI loan, though, you are usually referring to a monthly ARM. The payments change once a year, but the interest rate adjusts every month. The initial rate is usually very low and creates a low minimum payment. When the loan begins to accrue interest that differs from the payment rate, you begin the Option period. You will receive a payment statement that offers you several options. You may make the minimum payment. This will likely cause deferred interest that is added to your loan balance. You can pay the interest only payment. Since the principle paid on a 30 year mortgage is not very large anyway, some folks prefer this option. You will also be able to pay the fully amortizing payment at the current rate, determined by adding you margin to the current cost of funds rate. You should also be able to make additional payments to principle, unless there are pre-payment restrictions. The flexibility afforded the borrower by the different payment options makes this loan really attractive to self-employed and commission borrowers.


This can make for a very interesting, and sometimes confusing mortgage. The monthly statement helps to understand what is going on. Lenders also like to offer these loans with features like a no-doc option, an escrow waiver, and high loan to values for investors. Since most lenders require at least 10% of the sales price as a down payment, this loan is usually not recommended for first time buyers. Here is a copy of the index.

If you feel that you would like more information regarding this program, contact me directly at 1-888-466-3411.

Just when you thought you couldn’t find a loan with no money down, where the seller could pay 2% of your closing costs and you could have another 5% of the sales price for debt consolidation, here comes the 107% loan. Just when you thought you didn’t need a dime to purchase a home, you still do. Most lenders require the purchaser to invest 3% of their own money into the deal. This can be a spectacular program for the right borrowers. You can be a first time buyer, or a move up buyer. You can get into a home cheaply and payoff some debt at the same time, with one loan. As with all programs, understand the details before you borrow.

Here is something you will see more and more of especially during a refinance boom. As homeowners finance much of the cost of a loan transaction in the interest rate, the lender has to wait longer to get a return on their investment. If the borrower pays that mortgage off early, especially in the first few years, the lender can take a huge loss. To protect this from happening, lenders institute, in states where it is legal, a pre-payment penalty. This penalty is paid when the loan is paid in full before it’s time. Most loans will only have penalties in the first few years. Some have a sliding scale where the stiffest penalties are in the first year and they decline after that. Many lenders will even allow partial pre-payments up to 20% of the outstanding balance per year. Some loans only have a penalty if the loan is refinanced, not if the home is sold. No cost loans can be excellent for consumers, but if lenders continue to see major losses, expect to see more pre-payment penalties.

Revolutionary is the only way to describe the changes to my industry brought about by the use of automated underwriting systems. The two major secondary mortgage market conduits created computer programs that determine a borrower’s eligibility for their loan programs. Fannie Mae developed the Desktop Underwriter (R) and Freddie Mac has their Loan Prospector (R) program. Several large mortgage lenders including Wells Fargo and Countrywide have also developed programs that help to quantify prospective borrowers rather than qualify them the old fashioned way. Loan companies no longer force borrowers to meet strict ratio guidelines or produce a forest full of paperwork. The reduction in time, paperwork, and manpower has cut considerable cost from the process. For those that fit into the new underwriting guideline box, it has been a significantly improved situation. If though, for some reason, you do not meet the guidelines, you may find it more difficult, and or expensive to get the mortgage you want.