FrugalMe.com®
The following is designed to help Home Ownership Accelerator loan clients better understand how their new loan works and how best to manage it.
Congratulations on being one of the first to get one of the most innovative financial products ever to hit the U.S. marketplace. You’ll find that your money can now work even harder for you, giving you the financial advantage normally only held by banks. Use this guide to make the most of your new loan, and you’ll be well on your way to paying off sooner, saving thousands in interest, and doing it without changing your spending habits.
You have several important partners in this product. Your first contact was with FrugalMe.com (who originated the loan). We work with CMG Mortgage, one of the nation’s leading privately-held mortgage banks, who developed and funds the Home Ownership Accelerator. CMG will provide you with a special Customer Service Liaison who will contact you as your loan funds and walk you through some of the key things that will be happening after funding. Another key partner is GMAC Bank, who purchases the loan from CMG and will power the highly transactional nature of the loan — things like clearing checks, handling ATM transactions, and online bill-pay. GMAC will also provide day-to-day customer service, for specific account-related inquiries.
For the Home Ownership Accelerator, CMG has set up a special position called the CMG customer service liaison. This CMG specialist will call you during the week after you sign loan papers and will go over some of the basic operation points of the loan with you. Most importantly, they’ll be able to tell you what happens next and will answer any questions you might have about how the loan works. You can contact the CMG customer service liaison at (866) 659-8989. While GMAC Bank will be your main point of contact for account inquiries like current balances and transaction history, the CMG liaison will always be there as a kind of concierge to help you solve problems, get priority treatment, and cut through any confusion that might exist.
Within two weeks of funding, you should get two welcome kits, one from GMAC Bank for the checking side of Accelerator, and one from GMAC Mortgage, for the loan side of Home Ownership Accelerator. You actually get two account numbers. The checking side begins with 4, and the loan side begins with 8.
Within two weeks of funding, you’ll receive the GMAC Bank welcome kit. In it will be your account number (beginning with a 4), and the bank’s routing number. You’ll learn the bank’s address, and receive a signature card which you’ll need to return in the postage-paid envelope. You’ll receive a privacy policy statement as well. Most importantly, you can call GMAC Bank’s customer service toll-free number for all of your inquiries related to banking and transactions at (800) 648-5508.
Within ten days from funding GMAC Mortgage will also send you a welcome kit. It will let you know that your loan has been purchased from CMG. You will also receive a notice of where to send payments, but it’s actually better to send payments through the GMAC Bank portion of your account — the checking side of the account. This will make it easier to see all of your transactions, in and out, in one statement. If you have a question about your mortgage interest statement or monthly statement questions on the loan side of the account, you can call GMAC Mortage’s customer service number at (866) 346-3640.
Now that you’ve received your two welcome kits, within seven to ten business days after that you should receive all of the transactional components connected to your account. You’ll receive an initial set of personalized checks, with deposit slips. You’ll also receive your CMG/GMAC ATM/Visa POS card. ATM transactions can be made at any Star, Cirrus, or Jeanie ATM, up to $750 per day. All domestic and foreign bank surcharges will be reversed, up to eight times per month. Visa POS transactions can be made anywhere Visa is accepted, and the limit on that is five thousand dollars per day. Your ATM PIN, will arrive in a separate envelope (for security purposes).
Once you have your account number and checks, you’ll be able to set up direct deposit if your employer sponsors it. You’ll need to work with your employer’s payroll department, and you’ll need the GMAC Bank routing number supplied with your welcome kit. You usually need to provide your employer with a voided check as part of the form you fill out. Remember, be sure to direct your paycheck into the checking side of the account (the GMAC Bank side). And do note that it usually takes one to two pay cycles for direct deposit to kick in, so you’ll need to manage your account with that in mind.
Since tracking your account is important, you’ll want to set up the online banking feature next. Call the GMAC Bank customer service line at (800) 648-5508 and tell them you want to set up online banking. They will provide you with a PIN that will allow you to log in for the first time. You then simply go to gmacbank.com, click on My Account, and log in. You’ll then need to set up a permanent password for future uses.
Once your online banking access is all up and running, you’ll want to set up online bill-pay, so you can pay your expenses effortlessly out of your account. Just call the GMAC Bank call center at (866) 246-2265 to get started. Or, go to gmacbank.com and set up bill-pay yourself, and it will activate within five days. Once bill-pay is all set up, you simply log into gmacbank.com and pay your bills in minutes.
You should typically only need to use the GMAC Bank customer service number [(800) 648-5508]. Call your CMG liaison at (866) 659-8989 for questions about how the account works, problems with service levels, or if you want to learn more about how to maximize the benefits of the product. For IRS mortgage interest statement questions, call the CMG Mortgage customer service group at (866) 346-3640. Remember, you should probably only need to use this number for these occasional requests.
One of the main things that makes this loan so powerful is that it’s a line of credit, not a mortgage. There are two key terms involved in the structure of the line of credit: your current loan amount (or principal balance) and the line of credit. 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 other lines of credit, with the Home Ownership Accelerator, you can draw on your line for a full thirty years.
This is where the loan works differently again. It’s important to dissassemble what you know about principal and interest always being paid together (like in a traditional mortgage). With the Home Ownership Accelerator, your principal is paid down whenever you add funds to the account, like when you get paid and your direct deposit comes in. Your deposits are 100 percent principal when they come in and they lower your balance immediately. Since interest is charged at the end of the statement cycle based on your daily balance, any deposits cause a reduction in the amount of interest you would otherwise pay.
So, if your deposits are the principal portion, how do you pay interest? Well, it’s actually pretty easy. If you have enough available credit, interest is automatically added to your account balance when it becomes due. It’s just as if you wrote a check for interest out of the account, only we save you the trouble. If your loan balance is such that you continually have enough available credit, it’s possible never to have to write a check for interest on the loan, ever! Just think — you could never have to worry about being late on a payment again!
What happens if you max out your credit line and you don’t have available credit? Well, because you don’t have available credit, interest can’t be added to your account balance automatically, and you must send it in separately, using the payment stub on your statement. If you’re in the first ten years of your loan, you only owe interest. The red circle on this page represents such a situation. If you’re in the last twenty years of your loan and you reach your credit limit, such as in the green circle on this page, you need to pay both interest plus 1/240 of your line amount in principal so that your principal balance reduces. Remember, keeping deposits flowing into the account is the key to keeping your loan balance below your credit line — and it can make keeping track of payments a non-issue.
There is no overstating the importance of getting funds into the account. It’s what makes it work. Because when you deposit your income into the loan, it drives your balance down, saves you interest, and lets more of the money remain in the loan as principal. And you pay off faster, with no change to your spending.
Ok, so how do you get money in? You can direct-deposit it if you are salaried. You can go to gmacbank.com and EFT the money in from an outside account. You can set up an ACH transfer to regularly send a set amount in on a regular basis. You can wire the money in or use bill-pay from an outside account. Finally, you can bank by mail using the deposit slips provided. Remember, don’t let you money languish in a low-interest account — choose the method above that lets you put it to work as quickly as possible!
Direct deposit is the preferred way to get money into the account since your money goes into the account as soon as you get paid and gets to work fast. Remember, direct payroll deposit is an employer sponsored function and you need to work with your HR department to get the proper forms to submit. You’ll usually need a voided check to do this. Remember also that it often takes up to three pay cycles to kick in, so you won’t have funds flowing into your account for a while and you’ll need to consider that as you manage your account balance.
You can also pull money into your account using the easy transfer functionality found in your GMAC Bank online banking platform. You simply select the account you want to pull from, set the amount and the frequency or timing of transfers, and you’re done! This is the next best way to get funds into your account.
You can also push money in, by using the ACH credit transfer that your bank may offer. You instruct your bank to transfer funds into your Home Ownership Accelerator account (this is usually a set amount on a set timing). You’ll need to give your bank the Home Ownership Accelerator account routing number, account number, and the account holder names to make this happen.
Similarly, you can contact your bank and arrange to do a FED wire transfer. These will also require your routing number, account number, and account holder names. There may be a charge associated with this.
You can also use the bill-pay feature of an outside account to direct funds into your account. You simply designate yourself as a payee and include your GMAC Bank checking account number and GMAC Bank address. Remember that some banks only let you do one of these per month.
You can bank by mail using the deposit slips that came with your account. Be sure to endorse the check, signing it and placing your GMAC Bank checking account number, along with “for deposit only” on the back of the check. Then just mail it in to the GMAC Bank address.
GMAC Bank
PO Box 13625
Philadelphia,
PA,
19101
United States of America
As we said earlier, the Home Ownership Accelerator includes two accounts built into the same product. The first part is your line of credit. Let’s say that amount is $300,000 on January 1. The second part is transactional (where the checking features are housed). This account will always have a $0 balance at the end of each day. So let’s say that on the first, your account has a $0 balance, and on the second, you get paid $10,000. Your $10,000 goes into the checking account side via direct deposit. That means that on the second, your balance on the checking side goes up to $10,000. If you have no other credits or debits (like ATM withdrawals or checks), at the end of the day on the second, that $10,000 will sweep into your line of credit, reducing it’s balance from $300,000 to $290,000 automatically. Thus the end-of-day balance in your checking account is $0 again. Flows in the opposite direction work similarly — instead, you’d have a negative balance in your checking account and funds would transfer up from the line of credit into the checking account to bring the balance back to $0 at the end of the day.
You’ll see this kind of accounting for your transactions on two sets of statements. Ultimately, CMG plans to combine them into one simple statement. But for now, you’ll see these transactions on a checking side statement and a line of credit statement. Both statements cycle on the tenth of the month.
Here’s what your checking side statement looks like. In this example, the beginning balance is $0 (like earlier). Let’s say that on the twelfth you write a check for $15 and that’s all of the activity for the day. Since you’re starting with a $0 balance, your checking side account balance will go negative. At the end of the day, the statement will show an overdraft transfer credit from your line of credit that offsets the debit caused by the $15 check and returns your account balance to zero. Note that you may see a corresponding overdraft charge, but that will be reversed with a credit.
Let’s assume that on the fifteenth you get paid $4,450. This shows up as a credit on your statement. Let’s also say that you have a few other transactions that day, such as an ATM withdrawal and a Visa POS purchase at Home Depot. This time you end the day with a positive balance. Your positive balance is simply transferred automatically into your line of credit, paying down your loan principal. Again, you end the day with a $0 checking balance. Keep in mind that this side of the Home Ownership Accelerator doesn’t pay interest and you never carry a balance at the end of any day (unless your loan is paid off of course).
Your loan-side statement will show the corresponding flows in and out of your line of credit. These flows will match up to your bank-side statement.
The interest rate on your loan is based on the 1-month LIBOR index as published by Fannie Mae at the end of each month. You add your margin to the index to arrive at the fully-indexed rate on which interest is computed. This rate applies to the daily balance in your next statement period that begins on the tenth of the following month.
The interest charges for the previous period show on your statement that comes out on the tenth. Interest payments are due on the twenty-fifth. There are two ways to make an interest payment. The easiest by far is if you have available credit, you can just do nothing, and your account will be charged automatically. You can see that if you always have available credit, you never have to worry about making an interest payment, and you’ll never be late! Otherwise, if you don’t have available credit, you can simply mail the interest portion of your statement along with your interest payment to GMAC Mortgage at the address above or pay it online using online banking.
GMAC Mortgage
PO Box 79135
Phoenix,
AZ,
85062-9135
United States of America
One question that people often have is about whether or not to close their old traditional checking account. We recommend you leave it open, so you can easily make ad-hoc transfers into your Accelerator account. For instance, if you have a check, you can deposit it in your old local bank account, then use the easy ACH transfer function to move the money into the Home Ownership Accelerator account. This is especially important if your employer does not offer direct payroll deposit. Remember: you don’t want to leave much money, if any, in your old account, since you want to be working for you in your Home Ownership Accelerator account, keeping your daily balance lower.
Are your deposits FDIC insured? The short answer is that they are not. Remember, the checking-side of your account never carries a daily balance — it is always zeroed out each day, so there’s nothing to insure. Any funds you put into the Home Ownership Accelerator are swept to the line of credit, keeping your balance lower. This means your funds are converted to equity, which does more work for you.
Each year, you’ll receive a 1098 mortgage interest statement which shows for tax purposes how much interest you paid. According to IRS publication 936, interest paid on a mortgage loan used to purchase, construct, or substantially improve a home is deductible to the extent that the “acquisition debt” does not exceed one million dollars. In addition, if tax law requirements are met (and where state law allows), interest on home equity indebtedness of up to one hundred thousand dollars may be deducted in full for income-tax purposes. This means that the interest on the amount of your initial draw (e.g., to purchase the property) and any substantial improvements would be completely deductible, plus up to one hundred thousand dollars over that amount regardless of how the latter proceeds are used. You should always consult your tax advisor for more guidance.
You maximize effectiveness of the Home Ownership Accelerator by forcing your loan balance down and keeping it down as long as possible. This means depositing funds into the account as soon as you can. You can also get ahead by putting underutilized funds to work – basically any funds earning less than your mortgage rate are good candidates for moving into the Home Ownership Accelerator. You also improve the effectiveness by paying expenses as late as possible, such as by using a credit card in order to not have to draw cash from the Home Ownership Accelerator account. Of course, just make sure you don’t incur any late charges and make sure you pay off your credit card when it is due, since credit cards involve very high interest rates.
Remember, your best source for learning how your loan works is the CMG customer service liaison [(866) 659-8989]. While they do not have direct access to your account to look at individual transactions, they are highly trained on how this innovative product works, and can help you maximize the effectiveness of the product.
As one of the first Home Ownership Accelerator clients in America, you are part of a historic change in the way residential lending is being done. CMG promises to go the extra mile to provide you with the best possible experience with this loan. If you know of others who might find this loan attractive, be sure to refer them to FrugalMe.com. Thank you for your business and trust, and we look forward to serving you in the years to come.