Author Topic: Wealth Building Home Loan  (Read 2129 times)

Ryan started the FIRE

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Wealth Building Home Loan
« on: October 07, 2014, 01:29:25 PM »
http://www.thetruthaboutmortgage.com/the-wealth-building-home-loan-makes-the-15-year-fixed-mortgage-affordable/


I read this article the other day and have since been trying to read more about the Wealth Building Home Loan but I have not been able to find much about it.
Does anybody here know about this that can explain this to me a little better? I understand the math of it but I can't understand why a lender would want to provide a loan for such little return. How could they possibly make money on something like this? And if all of this is actually true, is there any reason somebody shouldn't switch their mortgage to something like this?

Thanks!

BaldingStoic

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Re: Wealth Building Home Loan
« Reply #1 on: October 07, 2014, 02:14:33 PM »
By "Wealth-Building" they simply mean that you start building equity faster with the 15-year, since a higher proportion of your monthly payment goes towards principal.  The advantage for the lender is that they get the loan paid back twice as fast and therefore also have less risk should interest rates rise.  But for the borrower (at present), the rates for a 15-year fixed are only modestly lower then the 30 year, and of course your payments are much higher since you're paying the loan off twice as fast.   I like the 15-year because it forces discipline, but I recently opted to ReFi with a 5-year ARM because the rates are cheaper and I plan to make lots of extra payments to whittle down the Principal. 

In terms of switching, only refinance if the rate is better.  Otherwise keep your current mortgage and just pay it down faster (assuming no prepayment penalty).   

Ryan started the FIRE

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Re: Wealth Building Home Loan
« Reply #2 on: October 07, 2014, 02:39:22 PM »
BaldingStoic, thanks for the quick reply. All of the articles I have read on this talk about 1% interest rates for these new types of mortgages with little money down and regular credit, and that is the part that doesn't seem possible to me. That is astronomically lower than anything I have ever seen for a 15 year loan term. When I first read about this I thought this cannot be possible, but if it is then I can't imagine why anybody wouldn't do this.

Mrs. PoP

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Re: Wealth Building Home Loan
« Reply #3 on: October 07, 2014, 03:01:53 PM »
This NPR story about the program seems to have links to things like a non-profit offering the loans (which might explain why the rates can be so low, perhaps they are subsidized by the non-profit).

http://www.npr.org/2014/10/03/353521437/new-15-year-mortgage-may-open-homeownership-door-for-more-buyers

HTH!