home ownership accelerator

Home Ownership AcceleratorHome Ownership Accelerator

CMG Home Ownership AcceleratorCMG Home Ownership Accelerator®®

Homeowner PresentationHomeowner Presentation

Jurgen WellerMortgage Planner

Silicon Valley Capital Funding(408) 891-9118

[email protected]


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Our Parents Spent Their Working Years Trying to Pay Off Their 30-Year

Mortgage.

Right idea. Wrong tool.

Opening thoughts…..Opening thoughts…..


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Product Trend: Smaller PaymentsProduct Trend: Smaller Payments

LESSPRINCIPAL

MOREPRINCIPAL

BIGGERPAYMENT

SMALLERPAYMENT

15-Yr Loan20-Yr Loan

30-Yr Loan

Bi-weekly Loan

40-Yr Loan

50-Yr Loan

Int. Only Loan

Neg AmOption ARM

3/1, 5/1, 7/1, 10/1 Hybrid ARMs


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Easy payments, low rates, and...Easy payments, low rates, and...

Price vs Household Income

(Q1 :1987 = 1.0)

Home Ownership Accelerator

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Debt still out of control. Debt still out of control.

Mortgage debt more than doubled since 2000

Source: Federal Reserve, U.S. Census datahttp://www.federalreserve.gov/econresdata/releases/mortoutstand/current.htmhttp://www.federalreserve.gov/Releases/housedebt/


Conventional Wisdom…Conventional Wisdom…

“A 30-year fixed is a great loan!”

“Lock-in a low fixed-rate today!”

“Your payment never changes!”

“Record low rates!”

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High Cost of a Fixed-Rate Loan StrategyHigh Cost of a Fixed-Rate Loan Strategy

• What we really buy: An ARM with protection– 30Yr Fixed is a hedged instrument: Roughly 0.50% in rate– $30,000 on typical $300K loan over 30 years

• What it really costs: Truth in Lending Statement– A $500K loan at 5.5% interest: = $522K in interest!

• How we use it:– Rate chasing: Typical 30-year loan refinanced in <5 years

• 8 loans in 40 year window: $50K in refi costs

– Front-end loaded: At 5-year mark (16% of 30-year term)• 25% of total interest due has been paid• Payment is still 75% interest• Takes 17.5 years to achieve parity on interest/principal payment.

– Pay as scheduled: Only 1 in 20 will make regular extra payments

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Bottom Line: Bottom Line: Mortgage is #1 Barrier to Building WealthMortgage is #1 Barrier to Building Wealth

• Mortgage consumes about half of your net income.– Typical mortgage payment vs income (DTI ratio):

• 33-45% of gross income • Often exceeds 50% of net income.

• Most of payment is interest (or all of it!)

• Mortgage always takes priority

• Most of us will retire WITH a mortgage


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Reducing Interest: The Mortgage Triangle Reducing Interest: The Mortgage Triangle

• People try all 3 ways to improve their mortgage.

INTEREST COST

TERM

PRINCIPALMake extra payments – works, but has 3 issues

% RATEUnpopular: 15-year loans

Marginal impact: Rate chasing


Doing the same thing over and overDoing the same thing over and overbut expecting a different result….but expecting a different result….

“Do you actually know anyone who refinanced their way out of debt?”

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Accelerating via extra paymentsAccelerating via extra payments

• Problems: – Commitment:

• Extra payments crimp lifestyle!• Hard to stick with it… for 22 years.

– Irreversible: extra payments are “one-way” • Might need that money in an emergency • Over-aggressive pre-payment of a fixed-rate loan could

result in insufficient liquidity.

– Impact: only can use a tiny portion of your resources

• Usually not more than 1/3 of your residual cash• Federal Reserve:

– Only 5% make regular extra payments– Average: $125 (less than 1/3 of cash available)


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How it looks: piles and holesHow it looks: piles and holes

Bank account: 1%

Home loan: 6%

Income

Expenses


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What if we could change this?What if we could change this?

Bank account: 1%

Home loan: 6%

Income

Expenses


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Just move the arrows…Just move the arrows…

Bank account: 1%

Home loan: 6%

Income

Expenses


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Simple change, big impact.Simple change, big impact.

You could…

• Save thousands in interestand

• Pay off in about half the timewith

• No change to spending habits

TM


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How it worksHow it works

• You deposit your paycheck into the loan

• Therefore, your daily balance is less.

• Therefore, you save interest.

• Therefore, you have more money for principal.

• Therefore, you pay off faster.

• Notice how we didn’t change your spending?

– For expenses, it works just like a normal checking

account!


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It’s all about Balance ReductionIt’s all about Balance Reduction

• Incoming deposits

• Outgoing expenses


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5-minute movie5-minute movie

On the homeownershipaccelerator.net site below.


Solves the 3 Big Problems with AccelerationSolves the 3 Big Problems with Acceleration

• Easy to stick with.– Direct deposits into the account– “Set it and forget it”

• Flexible.– Default is always to aggressively attack debt

FIRST• Only loan where you pay principal FIRST

– However, if you have extra expenses, you have access

• Maximize impact– ALL your income can go towards paydown

• Idle cash works for YOU, not the Bank 19


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New Thinking!New Thinking!

An Accelerator Payment

P&I Payment Expenses

Left-Over Cash

A Traditional Payment

P&I Payment Expenses

Left-Over Cash


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Lazy MoneyLazy Money


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Structure: Line of credit Structure: Line of credit

Initial credit line (10 years)

Credit line (final 20 years), decreases by 1/240 per month

Principalbalance (sample)

Available credit

$500K LINE

$400K LOAN

10 20 30


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YOU are in Control of the BalanceYOU are in Control of the Balance

Money In (reduces)– Direct Deposit (ideal method)– Bonuses, dividends– Rental property income– Small business income*

• Money Out (increases)– Interest

• Computed on daily balance• Added to principal on due date

– Access to money (equity)• ATM/Debit Card

– ATM (Cirrus/MasterCard®) $1,000/day limit

– ATM charges rebated 6/mo– MC P.O.S. debit card

$2,500/day limit• Unlimited checks• Bill-pay (free)

*See your CPA and tax advisor.


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Details….Details….

• Line of credit: first lien position– Owner-occupied, primary residences,

purchase/refinance– Line amounts: $100K to $2.5million– Initial draw: 25%-97% of the line– Requires 25% down (75% LTV maximum)– 700 FICO – all borrowers– Up to 45% debt-to-income ratio– Rate:

• 1 mo. LIBOR index (=0.23% today) + margin: 2.75% / 3.00% / 3.25%

• Initial rate: 2.98% / 3.23% / 3.48%– Margin improvements up to -0.50% for high FICO and low LTV

• Life Cap: +6% over Initial rate (= 8.48-9.48%)• Minimum rate (floor): 3.5% (everyone is at this today).

– $60 annual fee, waived in year 1.


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Am I the Ideal customer?Am I the Ideal customer?

• Money-savvy • Positive cash flow• Solid credit• Good money-management habits• Long term view / goal oriented• Open mind!


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#1 Concern: it’s an Adjustable…#1 Concern: it’s an Adjustable…

• It’s not just about the rate!

• It’s about the principal balance!


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Avg Increase= +1.45%/YrAvg Increase= +1.45%/Yr

Avg LIBOR=4.3%...…Plus Margin=7.05%, 7.30%, 7.55%

Avg LIBOR=4.3%...…Plus Margin=7.05%, 7.30%, 7.55%


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Avg = +1.45%/YrAvg = +1.45%/Yr


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Other typical concernsOther typical concerns

• #2. Property value decline: reduction of line / freezing

• #3. Tax deductibility

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Can my line be reduced / Suspended?Can my line be reduced / Suspended?

• Yes, under certain conditions set forth in Reg. Z.– Specific circumstances, not arbitrary

• See the line of credit agreement for full details. • Biggest concern: Substantial property value decline

• “Never put all of your eggs in one basket”– Home Ownership Accelerator is no different– Maintain financial flexibility to handle any

situation– Keep an eye on property value and interest rates!– Consult financial advisor for guidance


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But I’ll lose my interest tax deduction…But I’ll lose my interest tax deduction…

• Yes, probably some (good news)!• Interest is not in your best interest!

– Pay $3 in interest to get a $1 deduction? – Want larger tax deductions? Get a higher rate!

• Interest is still deductible while you have the loan– Acquisition debt $1M (married filing jointly)

• Purchase or Home Improvement

– Home Equity debt $100K (married filing jointly)• Other expenses


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Tax deductibility: same rules applyTax deductibility: same rules apply

$400K

$200K

Example: redraw $150K from equity (only $100K is deductible as home equity debt*, unless used for improvements)

$350K

New acquisition debt level(fully deductible)

Orig. acquisition debt basis

Same tax deductibility:- First + HELOC- Cashout refi (Flags in 2010)

- HOA

HOA difference:-Single loan!

Non deductible$300K

*Except under Alternative Minimum Tax rules


More Purchasing PowerMore Purchasing Power

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Typical Jumbo Loan Home Ownership Accelerator®

Max Loan Amount $2.0M $2.5M

Max. DTI Ratio 40% 45%

Qualifying Interest RateFully Indexed Rate

(about 5.75%)Fully-amortized

Rate +2% (about 5% today)

Interest-only

Payment on $1 Mil loan $5,836 (APR 5.869%)

$2,917 (APR 3.50%)

Purchasing power of $150K income$1.14M

at 75% LTV ($857K loan)

$1.80M at 75% LTV

($1.35M loan)

Other --

24/7 Access to equityFaster equity buildup

Direct depositAutomatic payment


You Become the “Bank of You”You Become the “Bank of You”

• Your idle cash works for you, not the bank.– The only loan your bank won’t offer you!

• Works like a corporate 2-way sweep account– Access credit (equity) as you need it.– Build up equity when things are going your way.

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Cash depositsInvestmentsReal estatePersonal belongings

Cash depositsInvestmentsReal estatePersonal belongings

BillsCredit Card DebtMortgage Debt

BillsCredit Card DebtMortgage Debt

Shifts from “rigid monthly obligation” to “flexible credit facility”!

Shifts from “rigid monthly obligation” to “flexible credit facility”!

Assets Liabilities


The Only Loan That Comes With a Loan ConciergeThe Only Loan That Comes With a Loan Concierge

• Client Liaison Team guides the borrower through the process of acclimating to their new loan– Pre-funding call– Post-funding call– 30-day followup– 45-day followup– 90-day followup– Takes inbound queries on how to best use the

HOA

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Loan ServicingLoan Servicing

• Investor/Servicer: Ameriprise Bank• Part of Ameriprise Financial

– A leader in financial planning. – Over 115 years of history– Over 10,000 advisors– Over 2 million individual, business and

institutional clients– $372 billion in assets owned, managed and

administered.

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What others are saying….What others are saying….


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Bottom line:Bottom line:

• Reach your financial goals faster.– Most powerful home financing tool for

consumers– Minimizes interest : enables faster payoff– Maximum flexibility for any financial strategy– Your money works for you, not the bankBecome the bank of YOU!

SPECIAL EVENT OFFER: FREE APPRAISAL!!(GOOD THRU MAY 31, 2010)Match name on sign-in sheet.

SPECIAL EVENT OFFER: FREE APPRAISAL!!(GOOD THRU MAY 31, 2010)Match name on sign-in sheet.


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Thank you!Thank you!


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ADDENDUM:ADDENDUM:Frequently-asked questionsFrequently-asked questions


““Know Thy LIBOR”Know Thy LIBOR”

• Avg rate of increase, last 3 rising rate periods: 1.45%/yr

• Average duration of last 3 rising rate periods: 26 mos.

• Average LIBOR (historical): 4.3%.• Average LIBOR +2.75% (i.e., HOA) = 7.1%

– Plus HOA cash flow effect - - typical effective rate 3-5%

• Freddie Mac average 30Y FX (historical) = 7.1%

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Know your (LIBOR) History!Know your (LIBOR) History!

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Max: 9% Avg: 4.3%Cur: 0.23%

LIBOR+2.75% Avg: 7.09%Fixed Avg: 7.04%


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Where is my Money, Really? Where is my Money, Really? And is it FDIC-Insured?And is it FDIC-Insured?

• Money is swept against your loan balance daily.– Any intra-day balance is FDIC insured,

– But no end-of-day “pile” to insure.

• Your cash is converted to home equity– Saves interest

– Higher effective yield on your money

• No “pile” anymore - - filling the hole instead. – 24/7 access to your money


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Thank you!Thank you!

home ownership accelerator

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