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The main performance driver is direct deposit of income into HOA; which drives down unpaid principal dramatically.
Interest is calculated daily on unpaid balance. Depositing income directly into HOA drives down principle immediately, upon deposit. Even if you wind up spending most of that income during the month, your daily unpaid balance is less than in a comparable traditional loan, so you save interest; without changing your spending habits. And the more cash you flow through HOA, the faster you pay down your loan.
Yes. But that's a good thing because you eliminated interest expense. We believe that “interest is not in your best interest.” Paying $3 in interest to get approximately $1 in tax deductions is a bad long-term strategy. Getting rid of your mortgage as quickly as possible is a lot more profitable. But while you’re paying down your principle balance, your interest expense is deductible (see your tax advisor).
Here is where we’re changing the way mortgages are viewed. It’s no longer about the rate. It’s about how many dollars of interest you pay. With HOA, your unpaid principal is frequently driven down by direct deposits, which can offset the cost of higher rates because you’re paying interest on a frequently falling balance. The effect compounds with the passage of time. The best way to see the effect is to use the calculator. You can see why even a rising interest rate will have a negligible effect on the terrific economy of financing with an HOA.
There isn’t one! Every time you make a direct deposit of earnings or deposit funds from any other source you’re making a payment. At the end of every monthly statement period, interest is charged based upon daily principal balance. If you have drawn down your equity, it is simply added to your principal balance.
HOA is ideally suited for homeowners with positive cash flow who understand that parking cash in their home loan can earn a higher effective return than parking it in a low-interest-checking or savings account.
It’s simple. Historically banks have dominated the mortgage market. Banks make money by paying depositors low interest on deposits and then loaning out that money in the form of mortgages; earning a profit on the “spread” between deposit rates and loan rates. If banks offered HOA to their customers, the spread would disappear; and with it, their considerable profit.
CMG is a mortgage banker who works with select loan brokers to originate HOA. CMG developed HOA and funds it.
No.
CMG works with sub-servicing partners who power the transactional aspects of HOA; ATM card, checks, electronic transfers, etc. CMG may sell the underlying loan asset to an investor, which will be transparent to the borrower.
Your credit line is the maximum amount you can borrow under the terms of HOA. The credit line usually is higher than your first draw amount, which ordinarily pays off your existing mortgage or completes your home-purchase transaction. Your credit line remains the same throughout the ten-year interest-only period, after which it declines by 1/240 per month throughout the remaining twenty-year life of HOA, until it reaches zero at the end of HOA’s thirty-year term. You are required need to keep your unpaid principal balance below the credit line throughout the term of your HOA, meaning that you will be compelled to pay down principal during HOA’s final twenty years.
Every time you make a direct deposit or deposit funds from another source you are effectively making a payment. At the end of every monthly statement period, an interest charge is taken, based upon your daily unpaid principal balance. The interest charge is simply added to your unpaid principal balance.
For the first ten years of HOA, you need merely pay interest only. After that you will be in the “repayment period”, where your credit line starts to decrease at regular intervals (1/240 per month), so that you pay off HOA entirely at thirty years.
Yes. Anytime. And we encourage it! Moving funds from lower-interest deposits or underperforming assets into your HOA will reduce principal immediately, both saving interest, and shortening the time to payoff. The great thing is that you can access the equity from your unscheduled or lump sum payment whenever you need it, for any reason.
While we do not recommend putting “all your eggs in one basket,” if cash is earning less than your HOA interest rate, it’s best to move cash into your HOA. Instead of “earning” 1-2 percent on cash deposits, you’ll “save” 5-6 percent on your HOA. In effect you’re getting the same return banks get on your deposits. Plus you have access to your cash whenever you need it.
No. But to maximize HOA’s potential, you should flow as much cash through HOA as possible. The more cash you “park” or run through HOA, the lower HOA’s daily unpaid principal balance, so the more interest you save. Your existing checking account can be linked to HOA to give you a fast method of depositing checks into HOA.
Not until you pay off your HOA debt and run a positive balance. HOA is a line of credit mortgage, and not a savings account, so it is not FDIC insured; until you run a positive balance, which is.
The interest on your HOA changes monthly based upon LIBOR interest-rate index plus the margin you choose (that margin remains fixed for the life of the loan).
London Interbank Offered Rate Index is an average of interest rates that major international banks charge each other to borrow US dollars in the London money market. LIBOR is among the most common indixes on which to base mortgages.
If you pay off your HOA early, you still will have access to accumulated equity, up to your credit line amount, until HOA’s thirty-year term is reached. If you continue to make deposits into HOA, when HOA is paid off, your deposits will earn interest at a competitive rate or you can simply move your money elsewhere.
Just like any mortgage, you owe the amount you borrowed, regardless of what happens to the value of your home. The problem some homeowners have when home values decline is that they owe more than the house is worth. But since HOA pays down principal faster, you’ll stand a better chance of avoiding going upside down than with a comparable traditional loan.
No. You can pay off HOA over its thirty-year term if you desire.
To get an estimate of your HOA’s payoff and its cost of interest, use the calculator.
There is no payment per se. During the first ten years of an HOA, you owe interest only; which is added automatically to the unpaid principal balance monthly. So there’s really no payment to make as long as your HOA’s unpaid principal balance stays below your HOA’s credit line amount. The only payment required is whatever it takes to stay below your HOA’s credit line amount.
Just like you access your bank account. You have access to your HOA online to view account balances and activity; you can access your equity by check, ATM, EFT, ACH and bill-pay.
Generally it is unnecessary. But because more of your income goes to reducing principal, you are likely to come out ahead if you do. Trimming your expenses likely will lead to an earlier payoff.
You can draw up to your credit line. The draw amount available is the difference between unpaid principal and your credit-line amount.
Sure. Just like unfettered access is to any form of your net worth. It all requires discipline.
Absolutely. A sophisticated investor will use HOA as a private bank from which to “borrow” money from available equity and “reinvest” it in an outside investment at a higher rate of return, pocketing the difference between the two rates as profit.
Because HOA is a mortgage representing acquisition debt on property, under IRS-publication 936, HOA interest may be tax deductible. Consult your tax advisor. HOA-interest deductibility is no different than your current loan's interest deductibility.
Of course. But if maximizing your interest-tax deduction made sense, you’d want to pay a higher interest rate on your loans; right? Instead you should minimize overall interest with an HOA to own your home sooner.
It doesn’t have to be. HOA margins can be as low as 0.75 percent. Most borrowers find that even choosing a higher margin will have a minimal effect on HOA’s payoff timing, particularly when compared to the costs and longer payoff periods of traditional loans.
Most mortgages do not have the ability to do transactions, and traditional home equity lines of credit only let you write a low number of checks (often with a minimum draw). This is a mortgage which gives you full transactional capabilities, which is what the annual fee helps offset. Compared to the amount of interest you’ll be able to save, it's a relatively small fee.