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This presentation is designed to provide you with a full overview of the product, how it works, and why it makes sense for today’s savvy homeowners. We’ll cover the market realities that this product addresses, we’ll go in detail as to how it works, and we’ll answer some of the top questions people ask about the product. Stick with us and you’ll see why many people believe that this product will revolutionize the way Americans pay for their homes.
Let’s take a look at today’s mortgage landscape. These days, it’s all about the getting the payment right, isn’t it? From the 80s, with the advent of adjustable-rate mortgages and negative amortization product, through the 90s, with hybrid ARM’s that are fixed for three, five, or seven years, to the 2000s, with interest-only products, fourty-year, and even fifty-year loans, the focus has been on getting the payments to be comfortable — so we can afford that ever-more expensive home. Do you ever actually hear anyone talking about “right sizing” a loan for a client? So unfortunately, for all too many people, the process of actually paying off the loan has often been postponed, having been replaced by endlessly hitting the reset button on a thirty-year term.
And since more people can get a comfortable payment on a larger mortgage, home prices skyrocket. If you compare home prices versus income, indexed back to 1976, you’ll clearly see the housing price run-ups of 1980 and 1990, and you’ll clearly see how in each case, prices eventually moved back down in line with income. Now, in the early 2000s, you see our current home price spike. Note that this graph only goes to 2004, and doesn’t include 2005 numbers. Again, it’s simple supply and demand, not low interest rates like many people think (we’ve had those before). The reality is that we’ve increased the demand for more expensive homes by increasing the pool of borrowers who can make a payment on a given home.
So, it’s no wonder that mortgage debt is skyrocketing. U.S. mortgage debt is up 60 percent since 2000, to $9 trillion dollars! And we know that income and population haven’t grown at that rate in the last five years!
Currently, we have appreciation that probably won’t continue indefinitely, large debts because houses cost so much, and now interest rates are moving up. If you’re fourty years of age or older, you’re looking at finally paying off a traditional thirty-year mortgage in your seventies or later – when you should be enjoying your retirement. Remember, even if appreciation somehow continues, all houses become more expensive, so cashing in on appreciation doesn’t change the fact that you owe money. Unless you want to downsize or move to a low-cost state, you have to deal with your housing debt at some point.
One way to pay off that debt quickly is to get some more money (which we know isn’t going to happen). Or, the money you do have is going to have to work a lot harder. So let’s take a look at what your money is up to right now.
First, when you get paid, where do you put your money? You put it in a checking account, so you can get access to it when you need it. There are lots of good reasons you store up money in a checking account: short term needs like a sandwich at lunch, gas money, and monthly bills. But you often forget that you have to also stash money away for longer term needs (like property taxes and vacations). You don’t invest that money in the stock market because it might not be there when you need it. So you leave it in low-interest accounts, waiting patiently to be spent. You also have money that is almost always left in there (for emergencies or to prevent bouncing a check). But again, while all of this money you make is waiting to get spent, we all know it doesn’t earn much interest.
CMG has boiled this down into a diagram they call “piles and holes”. Your money sits in a pile, earning very little, and all of the activity is at the pile. Your paychecks come in and your spending goes out. It earns 1 percent or less, usually. The hole (or more properly a “whole” lot of debt) costs 6 percent, and once a month you put a little money in the hole — remember it‘s just the principal portion of your monthly house payment. If you have any extra money, you could prepay some additional principal and get done with your loan faster. But most people don’t do this, because they might need that money down the road, and once you prepay any principal, it’s permanent — you can’t get it back.
But what if we could change this? What if you could fill up the hole with any unused money you had, whether or not you were going to need it in the future. If you could do this, the hole would then get smaller and cost less interest. When you need the money, you could simply reach down in the hole and get some out!
With this new loan, that’s just what we’re going to do; all we’re changing is where your paychecks go first and where your spending comes out of.
And that’s the Home Ownership Accelerator.
It’s a simple change, but it has a big impact. You could save thousands in interest, pay off in about half the time, and do it all with no change to your spending habits.
In a test market during 2005, several major Bay Area media reviewed the product. The San Francisco Chronicle says it’s designed to help borrowers accelerate their principal payments as painlessly as possible.
The East Bay Business Times says that it could revolutionize the way Americans pay for their homes.
To see how it works, you can watch the five minute movie (or read its transcript).
The CMG Home Ownership Accelerator is not a mortgage! It’s a line of credit. We’ll do loans up to $2.5 million, and up to 90 percent of the value of your home. The line of credit is based on the one-month LIBOR index, plus a margin. Today, one-month LIBOR is a little over 5 percent, and the margin you choose can be from a high of 3.25 percent (where the broker may pay some of your closing costs) and a low of 0.75 percent (which you would pay points up front for). That means that the fully-indexed rate could be as low as about 6 percent. Ask your broker about the various margins and see how buying down the margin could be a smart move. The life cap is just 5 percent over the starting rate.
Let’s say you needed $400,000 and you took out a line of credit for $500,000. The line of credit would remain at $500,000 for ten years, then it would decrease by 1/240 per month for the remaining twenty years. As you pay down your principal balance, your available credit changes. Remember, unlike a normal HELOC where you can only draw for ten years and then you have a fifteen-year repay, with the Home Ownership Accelerator, you can draw on your line for a full thirty years. And because it’s a line of credit, you aren’t required to put money in every month (like a mortgage) as long as you stay below your credit limit. This makes it an excellent loan for self-employed individuals whose income might fluctuate. It can also leave a nice cushion if you have unexpected expenses or an emergency.
When CMG originally developed this loan in early 2005, it was with the intent that they could help people pay off their homes faster and save interest along the way. But when they got out into the marketplace with this product, they found that it was also very interesting to people who were investors. This group fully utilizes the line of credit and uses the funds to achieve a high rate of return (say 15 percent) on outside investments.
They also found that those in retirement could use the loan to supplement their income. They take the loan at a very low balance and high line amount and use it when cash is tight – or maybe so they can travel, see the grandkids, make an investment, etc. The good part about this is that compared to a traditional reverse mortgage, it doesn’t cost as much up front, you can get much higher line amounts, it has a broad range of ways to access and deposit money, it has tax deductibility, and you don’t have to be sixty-two! Perhaps the best part is that you can change strategies from one of these approaches to another, anytime it suits you, without having to refinance your home again! You can deal with life’s curve-balls and opportunities in stride.
When money comes in (such as the direct deposit of your income, bonuses, or dividends), it reduces your principal balance (because it is essentially your payment). You can also park rents and small business cash in the account temporarily, which will also reduce your principal balance and save you interest (you should consult your CPA and your tax advisor when doing this because certain regulations do apply).
When money goes out (for interest or your expenses), it increases your balance. Interest is computed on daily balance and posted once a month. Your statement arrives on the tenth and shows how much interest you owe. If you send no new funds and you have available credit, on the twenty-fifth it’s simply added to your balance, which means you never have to write a check to pay your loan and you’re never late!
Remember, your money is already in your account (keeping your balance lower) since it’s where you put your paycheck when you got paid. You have full access to your money (your available equity), just like your old bank account. You have an ATM card that’s good at over twenty thousand ATM’s in the STAR and CIRRUS network, and you get eight surcharge-free transactions per month up to $750 per day. The ATM card can be used as a VISA POS card anywhere VISA is accepted; it has a five thousand dollar per day limit. You get free online bill-pay too. These transactions are powered by our eleven billion dollar servicing partner, GMAC Bank.
If you would like to see how the Home Ownership Accelerator can help you save money and pay off faster, you can use the patent-pending interactive simulator.
To wrap up, we’re going to review ten common questions that people have about the loan.
The first question we get is “is this for real?” Well yes, it is. This loan was developed by CMG Financial Services (who funds about five billion dollars in loans annually), the transactional end is powered by GMAC Bank, and the product was in development for nearly four years. It’s based on a similar type of loan that is popular in Australia and Great Britain and represents about one hundred billion dollars in home loans in Australia annually.
The best client is generally someone with good positive cash flow. This allows you to force down the balance enough during the month to be able to generate some interest savings (as opposed to a traditional loan). This ususally means that you have a reasonable sized mortgage compared to your income and expenses. Since each client is different, the only way to really tell is to put your information into the interactive simulator and let it compute the savings and payoff timing.
Many people consider trying to accelerate their mortgage payoff by paying extra on their loan payment from time to time, going to a bi-weekly payment schedule, or even paying thousands for a system to teach them how to use their loan plus a home equity line and a credit card to pay off sooner. The truth is that all of these systems do work, but these systems never catch on because of three key problems:
Unlike these systems, the CMG Home Ownership Accelerator is designed to require you to make no change to your current lifestyle; all of your money is working all of the time to help you save interest and pay off sooner; your own money is doing all the work for you!
Remember, it’s no longer about the rate, it’s about how much interest you pay on a lower principal balance. Because you’re continually forcing your principal balance down compared to where it would have been with a traditional loan, you’re going to pay less interest. So even if rates go up considerably, you could still end up paying less interest and paying off sooner. This is where this loan has really rewritten the old rule of rate driving your payment.
Imagine choosing from two signs to put in your front yard. One says “I paid 6 percent and $400,000 in interest” while the other says “I paid 8 percent and $250,000 in interest.” Which sign would you choose? Of course, you’d choose the one that makes you look smart! Remember: if you have funds in low-interest savings accounts that are earning less than your mortgage rate, you can park these funds against the mortgage to drive down your principal balance and (often enough) completely offset the effect of rising interest rates. The best part is that you still have full access to these funds if ever you need them.
The good news is that you will lose it when your loan pays off. We like to say that “interest is not in your best interest” because you have to pay three dollars in interest to get about one dollar back in deductions — not a great deal. In fact, if getting a higher tax deduction was the objective, then you’d want to take out a loan with a higher interest rate, right? Of course this makes no sense. So get rid of your loan as soon as you can with the Home Ownership Accelerator. Remember: the same tax rules apply to this loan as with other loans, so the interest you do pay while you have the loan may be tax deductible (consult your tax advisor to see if it is).
The short answer is no. Once your funds go into the Home Ownership Accelerator, they sweep promptly against the loan balance, so while any daily balance is FDIC insured, there’s generally nothing to insure since you’re constantly sweeping the pile into the hole.
Skeptics of this loan often proclaim that access to the equity in your home is dangerous. While this loan is not for everyone, the reality is that you probably already get plenty of offers for credit cards and home equity lines every week of the year. This loan requires you to have good credit, and if you were the type that abused credit, you probably wouldn’t have a good credit score and would not qualify for the loan. Having access to equity is a great security blanket in the event that you lose your job or have an unexpected emergency.
It’s a home loan, so it’s no different than a traditional mortgage in that you owe a set amount regardless of what happens to your property value. But since you could be paying off much faster than a traditional mortgage, you’re less likely to be underwater on the loan, where you owe more than the house is worth.
First, remember that this is a line of credit and there is no set payment like a traditional loan which amortizes on a schedule, but interest is due every month (whether you let available credit take care of it or you specifically send in a check for interest due). Beyond the interest due, you are responsible for paying down principal enough to stay under that credit line limit that was established. With a traditional loan, these numbers are set forth for you on a schedule, and principal and interest become one portion of your monthly budget.
With the Home Ownership Accelerator, your payment is made when you deposit your entire net paycheck in the loan — it’s just that you withdraw some of it for expenses during the month. The fact that your entire net income hits the loan before interest is due actually saves you interest. “The payment” is your entire paycheck. More conservatively, it’s the part of your net income that you don’t spend that month. At a minimum, you are paying the interest due on the loan (even if you don‘t make a deposit in a given month). Remember, one important differentiator is that the Home Ownership Accelerator is the only loan in America where you pay principal first!
No. You have access to the line for thirty years and you can continue to deposit funds for the duration. If you end up with a positive balance, you can sweep it into a money market account using the online banking feature (and use it); you can also use your available credit line for additional cash down the road (should the need arise).
We hope you have a solid understanding of why we believe this loan is truly the most powerful financial tool in the home finance world today. Finally, you can benefit from the power of your money working for you and not the bank. Whose money is it after all?
Apply today or contact us about how it could work for you — and join thousands of satisfied customers who are saving thousands in interest, paying off years earlier, and doing it with no change to their spending habits.