The Wave of the Future (Something to ponder)

We might be telling our age but….

I remember when my mother told me foreign cars were a bad investment because they broke down and parts would be hard to come by. That sure is a thing of the past!

I remember buying my first car, either pay cash or finance with a big down payment. Leasing is now the wave of the future.

I remember 8 tracks and cassette tapes. That's a thing of the past. DVD and MP3 have taken over. This is the wave of the future.

I remember having a rotary phone. Ha! That's a thing of the past. Cell phones are the wave of the future. Heck, you may not even own a land line phone.

I recall going to the library. That's a thing of the past. If I want information I visit the Internet.

I remember when I used to deposit my check in the bank and tell the teller how much cash I wanted back. That too, is a thing of the past. Now I have direct deposit, ATM cards and online banking. This is the wave of the future.

The first company I worked for had hundreds of file cabinets. The company I work for today is 10 times bigger and they have no file cabinets. All documents are scanned. They put 100 file cabinets in a single computer! This is the wave of the future.

All of these advances save time and money. You will soon learn how our option loan will do the same for you.

This is interesting, I remember when my mother bought her house and got a 30-year fixed mortgage and lived there for 30 years. Looking back, I have moved 4 times in the last 10 years!

The difference is you might have been the last on the block to embrace certain changes. Today you now have the opportunity to be one of the first to change financially. You ARE going to do it. It is not if, but when.

Oil prices are increasing, deficits are soaring, people are living longer, and social security will soon be a problem.

Don't you agree this will have a ripple effect on the economy? Prices for goods and services will continue to rise. You will be scratching and clawing for ways to save money, that is, if you are not forced in doing just that already.

Why not start at home, by using a mortgage as an investment tool vs. a payment machine?

A Tale of Two Brothers:

People who understand how their money works choose to carry a big, long mortgage and NEVER pay it off. Adopted from the New York Times Best Seller, The New Rules of Money, by Ric Edelman

Our story begins with two brothers, each earning $70,000 a year. They each have $40,000 in savings and both are buying $200,000 homes.

"The Untold Story"

INDEX ARMs
By David W. Lewis, CEP, Mortgage Strategist

Congratulations on your decision to learn the "Untold Story"! If you are a current homeowner, or contemplating purchasing a new home, this report will give you vital information that will save you hundreds of dollars a month on your mortgage interest payments. Many hours have been invested interviewing mortgage experts and researching the information in this report.

I can almost guarantee that the content in this report will not be familiar to your ears. I say this because I talk to experienced financial planners and CPAs on a daily basis that give me the "deer in the headlight" look when I discuss my program with them. By the way, please understand I am saying this in a humorous way. The main focus of my program is working with financial service professionals and their clients.

Even more interesting is the response I receive when the financial planner or CPA confronts their banker, and they have never heard of such a program either. I have been told that the usual response from the bankers, "there must be a catch somewhere; we don't offer this type of program." Of course, that is a typical response you can expect from someone who is misinformed or uniformed about the subject matter you are discussing with them.

My goal with this report is to get you thinking for yourself instead of thinking the way banking institutions want you to. I want you to realize that you have options when it comes to your mortgage, options not available through 98% of the traditional lending institutional today. Furthermore, I understand the value of your time and how difficult it is to juggle your work, family and other activities. This is why I urge you to invest your time wisely and review this report: it will forever change the way you view your mortgage! So grab a cup of coffee, relax and take some quiet time to learn how you and your family can realize hundreds of dollars in interest savings on your mortgage.

It has been said, "A mind expanded, will never return to its original shape!"

Deceived or Misinformed?

If you are a current homeowner, take a moment to locate your most recent mortgage statement. Found it? Great! Now, look at your statement. Looks like every other normal mortgage statement doesn't it? Now, take a closer look at the breakdown of your mortgage payment. The breakdown should show what has been paid in interest and principal year-to-date.

It is disappointing to see how little of what you pay each month applies to the principal, especially if you have owned your home for less than 10 years. Even more disappointing is to see how much interest you have paid! Of course I'm not telling you anything you don't already know. After all, how else do you think banks get the money to build their high-rise marble buildings? Selling Girl Scout cookies? I don't think so. The bottom line is this: If you currently have a traditional 30-year mortgage (especially when it is a fixed interest rate), an average of 90% of your monthly payment for the first 10years or more, of your loan will go to interest.

To illustrate a more visual example… Let's say your monthly payment on the 30-year mortgage is $1,000.00. In the first 10 years, approximately $100.00 per month will be applied to the principal payments. The total amount paid towards your principal in the first 10 years will be a mere $12,000 of the total amount paid of $120,000. That's $108,000 being paid towards interest on your loan TO THE BANK. WOW! Have I got your attention yet? If not, go grab a mirror and put it under your nose to see if you can fog it...

When it comes to choosing a mortgage program, LARGE banks and other lending institutions have programmed us; for example, by saying things such as, "Oh, you don't want that type of loan, you want a fixed rate; it's safe and your payments will stay the same from month-to-month. What the banker should be adding to that statement is, "by-the-way, the fixed rate mortgage program I am recommending will cost you a premium of third more interest than you need to pay!" "Thank you for paying us back 3 times the amount you borrowed"!

Here's another one, "you should try to pay down the principal on your mortgage with bi-weekly payments." What they should be saying is, "we will gladly hold on to half of your monthly mortgage payment for two weeks. Now we can earn even more profit on your loan while we continue to calculate the amortization for 30 days instead of 15 days." This is an interesting concept of which many have fallen prey. These are just two techniques banks use to their benefit.

Many people believe that the bank is their friend, just because they have banked there for years. That is very humorous unless you recently parked 5, 6, or 8 million or so in their vault. Make no mistake about it, BANKS ARE A "FOR PROFIT" BUSINESS.

I want to talk for a moment about fixed rate mortgages and how they are designed by banks to give you a false sense of security. Always remember, security has a price. This false sense of security is costing you hundreds of dollars each month in additional interest. If you have a fixed rate mortgage and you are in your strongest income producing years, you have my condolences. You have fallen into the fixed rate trap. Let me explain!

A Fixed Rate Mortgage Can Cost You Dearly:

There's a price to pay for having a fixed rate mortgage. Did you know that banks purchase money at daily variable rates, and then sell the money to consumers at fixed interest rates? Why do banks do this? Could there possibly be a premium profit margin built inside a fixed interest rate? With a fixed interest rate mortgage, banks can charge you whatever premium interest (margin or better know as PROFIT) the market will bare them to charge.

Chances are your current mortgage program is probably a fixed interest rate or an adjustable with a low fixed rate for the first 3 to 5 years. If this is so, every month you are handing over to the bank hundreds of dollars in additional interest payments. The bottom line is this: the monthly interest you pay on your mortgage, i.e., the bank's profit, is actually filling their coffers for giving the privilege of using their money at a fixed interest rate. Yes it's true; with a fixed rate banks are taking all the risk of interest fluctuation. However, it must be a pretty good calculated risk that makes sense, or why would banks take that risk? Banks take this risk because it's extremely profitable to do so and they are in the business of making money, BIG MONEY.

Your mortgage is the perfect example of this. Like we said earlier, only 10% of principal you pay each month for the first 10 years goes towards principal. Therefore Banks are making LARGE sums of money on the interest they charge you on your mortgage, especially in the first 10 years! This initial period is a profit monster period.

An Important FACT to Consider:

Based on national studies, the majority of Americans are turning their mortgages every 5 to 7 years. Homeowners are either selling their home to purchase a larger newer home, or refinancing the home they currently live in. If this is true, then banks are making mega bucks on mortgage interest (your money) for the first 10 years of your loan.

My next statement is this; if you are a homeowner who plans on turning your home in the time period I am referring to, why be so concerned about reducing the principal of your mortgage and concentrate, instead, on ways to reduce the interest you are paying. Why not let the largest investment you may ever make (your home), appreciate naturally at the rate of 5% to 8% yearly and find ways to reduce the interest payments instead. You could be realizing hundreds of dollars in saved interest each month into your pockets. This is called leveraging your mortgage. WOW, imagine if you could put a third of the monthly interest you are paying to the bank back into your pocket. Keep reading.

There Is A Better Way:

Like most homeowners, you probably feel that there is nothing you can do about decreasing your interest payments. Well, have I got news for you! Believe it or not, you can, have more control of how much mortgage interest you pay your bank, especially in the first 3-to-5 years of your loan! You can actually lower your monthly payment, save hundreds of dollars each month, and still pay off your mortgage in approximately 24, not 30, years What you are about to read explains a 3 to 5 year financial strategy that anyone who owns a home can implement. You can free up cash, pay off debt or kick-start any financial goal you want to achieve and have more control over your mortgage payments.

This plan however is not for everyone. You have to evaluate your individual circumstances to see if the principles I am about to share with you apply to you financial needs. I believe that once you see how the pieces fit together, you will view your current mortgage program in an entirely different way. This program is based on core-value principals and sound financial planning. It can be a tremendous benefit to millions of Americans, like you, looking for a better way to refinance or purchase a home. It can make affordable mortgages available to countless individuals and families who could not otherwise afford the high monthly payments by fixed rate mortgage loans.

Leveraging Your Mortgage Using An Index ARM Program:

To understand this next section, I am going to ask you to open your mind. Your mind is kind of like a parachute; it works best when it's what? That's right, open!

What is an Index ARM? An Index ARM is a specially designed adjustable rate mortgage created to allow you, as a homeowner, options when it comes to your mortgage which traditional mortgage banks do not offer. The Index ARM, like other ARM's base the interest rate on an index plus another value called a margin. An index is a moving value over a period of time. You no doubt have heard of the Prime rate. That is an index. Maybe you also heard of the Consumer Price Index as well. Our Index ARM is a pro-consumer mortgage program backed by the most stable indexe in the mortgage lending industry. Here is why I say this.

A Cost Driven Index vs. a Market Driven Index backs the Index ARM and the rates are based on the returns given on money deposited in low-interest baring accounts such as certificates of deposits, savings accounts, bonds, etc. The cost driven index is less volatile than its competitor, the Market Driven indexes. Market driven indexes consist of the T-Bill, LIBOR and Prime Rate, which are based on market speculation. Historical charts provided by lending institutions offering Index ARM programs illustrate the stability of this type of mortgage program even through market fluctuations.

The Index ARM has a tendency to lag approximately 6 months to 1 year behind the Market Driven Index. This means when rates go down, it takes approximately 6 months to 1 year to follow the decrease; when rates start to increase, it takes approximately 6 months to 1 year to follow. From what I have been told by financial experts, if you are a homeowner with a mortgage backed by a Cost Driven Index, you should not be concerned about your interest rate rising until you start seeing the banks giving 7% to 10% returns on low interest bearing checking and savings accounts. When was the last time you witnessed that happening?

So why haven't you heard about the Index ARM program? The answer is quite simple. Banks pay millions in advertising and marketing dollars each year to keep our minds fixed on their highly profitable fixed loan programs. Leveraging your mortgage using an Index ARM program will give you an entirely new perspective on mortgaging your home. While the Index ARM Program has been in existence for some time, it is virtually unknown to the vast majority of homeowners.

This Unique Program Gives Homeowners The Following Benefits:

• Four payment options on a month-to-month basis
• Considerably lower start rate than traditional rates
• Offers a more stable Index than traditional programs
• Can reduce 6 to 10 years off of a typical 30-year mortgage
• Is a strategic financial planning tool

Does Your Current Mortgage Offer These Benefits? Probably Not!

The possibilities are endless with an Index ARM program. I want you to open your mind to possible thinking. To do this, you are going to need two things: a plunger and a bottle of Draino. The plunger is for sucking out "the garbage that the banks have inputed into your brain bank. The Draino is for your home in case your drains clog up. You might need it eventually, so I wanted to give you a mental note before you go to the grocery store.

What kind of possibility thinking am I talking about? How creative do you want to get? "Your imagination is your only limitation." If you currently have a mortgage of $200,000 at a 7% fixed interest rate, an Index ARM program could save you on average, $750 a month in realized interest savings for the first 5 years of your mortgage. Now, take a moment and ponder; what would I do with an extra $750 a month... That's $9,000 per year for the next 5 year's Let's take this a step further. Multiply your estimated annual interest savings of $9,000 by only 4 years instead of 5 years. What you get is an additional $36,000 of disposable income that you would not have with a traditional fixed rate mortgage. If you consider taxation, $9,000 in interest savings each year is equivalent to a $12,000 gross raise per year in household income. Here is another important fact to consider. A national bankruptcy survey stated that on an average, if American families filing for bankruptcy had an additional $300 per month of household income, the majority of them could have avoided bankruptcy. Leveraging your mortgage with an Index ARM program gives you flexibility and savings.

Let's take it Another Step:

Now that you have this additional income, let's put it to good use. The Index ARM program is a tremendous financial planning tool. Consider your possibilities: you could invest your annual savings in a self-directed retirement plan, purchase an investment property, pay down high interest debt, start saving for your children's college tuition or remodel your home. How about taking the additional interest savings and applying it to your principal every year? That would really allow you to pay off your loan quickly.

In addition, Index ARMs may be used for advanced tax planning purposes. You, as the borrower, can pay the minimum payment option to maximize your cash flow and defer your interest payments until tax planning time. Your tax professional can analyze your tax situation and recommend the best option to serve your tax needs. This may involve making a lump sum deferred interest payment toward your mortgage or letting the deferred interest go to a later time when you need the tax deduction. It is important to always consult an experienced tax planning professional before utilizing this tax strategy.

And best of all, you can get cash in hand immediately; you don't have to strip equity from your home! With minimum risk to you, your home has now become a source of revenue to accomplish financial goals that you probably thought you'd never achieve. Who said your home is a liability? I just showed you how it can be a major asset. It's only a liability if you have a traditional fixed rate mortgage. It's up to you whether you view your mortgage as a liability or an asset.

You have just taken your first step in learning how to leverage your mortgage. Index ARMs are not new. They have been gaining popularity in recent years as borrowers have become more knowledgeable and more selective about the financial programs they choose. Today's consumers have a more informed mentality. If you count yourself among this new consumer group, then you will like the flexibility, versatility and savings options that Index ARMs provide.

"When it comes to your home loan, you need to compare Apples to Apples. You may find out you have a Lemon!"

Advantages of Index ARMS:

• Flexible Monthly Payments

One of the main advantages of an Index ARM program is the month-to-month flexible payment option. With Index ARMS, you have a choice of 4 different payment options.

(Option 1) Pay only the low start rate usually about 1.5% to 2.95%; depending upon the loan program you qualify for. This option allows you to maximize cash flow for as long as you need. Your loan may accumulate deferred interest (additional unpaid interest attached to the back of your loan), for a short period of time. However, you can consider the deferred interest as a low interest loan to yourself for a short period of time. You also have the choice of when you want to pay it back and at the terms that are convenient to you.

(Option 2) Pay interest only payments as long as you like. This is another great option if you need additional cash flow. The cash flow isn't as significant as the low start rate option but you can save money on a monthly basis with this option.

(Option 3) Pay the fully amortized payment, i.e., principal and interest. This is the same as having a fixed interest rate mortgage. However, there is a difference. If you have a fixed rate mortgage and interest rates decline by a considerable amount (enough that it makes sense to refinance), what do most homeowners do? Refinance right? And when you refinance who pays the loan costs? You do through the equity in your home! Remember, every time you refinance your mortgage, you lose equity from loan costs related to the refinance. An Index ARM program allows you to take advantage of the drop in interest rates without having to refinance your home loan and losing equity. Most likely, you will never have to refinance your current home again. On the other hand, if rates were to climb rapidly (like they did in the Carter Administration), less of your principal will be paid and you could accumulate deferred interest on your mortgage. On that note, you need to know that the Index ARM programs of today are somewhat different than the early 80's. Safeguards have been added that were not available in the early 80's. Financial experts believe what took place in the early 80's will most likely never happen again because of the worldwide dependency of a stable U.S. economy. But that does not mean it might not happen. I always believe in telling the whole story. There is always the good, the bad, and the ugly to everything. You have to determine your own risk tolerance.

(Option 4) For those of you that want to pay your loan on a 15-year plan, we haven't left you out of the game. Well let you play too. You can choose to pay a 15-year amortization plan at any time, and then return to any of the other 3 options when you want.

• Higher Qualifying Ratios

Because the fully Indexed rate is usually about 1 to 2 % lower than conventional fixed interest rates, your debt-to-income ratios will be lower, therefore giving you the ability to qualify for a larger mortgage, in plain English this means, "more house for your buck!"

• Annual Payment Caps

An Index ARM gives you a low monthly start-rate. However, payments change each year on the anniversary date of the loan for the first 5 years up to 7.5% of the previous year's monthly payment. Not a 7.5% interest rate increase, but a monthly payment increase. I want to make this perfectly clear so I don't lose you. While your payment remains the same for the first year, and can only increase by 7.5% each year thereafter for approximately 5 years, interest rates will fluctuate as market conditions change, affecting the interest rate of your loan. This goes the same for traditional mortgage programs also.

So you understand why payment caps were implemented, as the 7.5% payment increase was designed to offset any rise in fluctuating interest rates under normal economic conditions. This is why lenders who offer Index ARMs give you, the borrower, and flexibility of four payment options to keep your mortgage from going negative if interest rates rise dramatically. The key word is options, something you do not have with most fixed rate mortgages or traditional ARM loan programs!

Disadvantages:

• Prepayment Penalty

Index ARMs generally come with a pre-payment penalty from 1 to 3 years. The pre-payment amount is usually about up to an amount equating to 5 payments. Again, if you are planning to keep your home for at least 3 years, this should not present a problem as most, not all, programs provide an elimination of the penalty if you need to sell your home within the prepayment period. Pre-payment penalties, however, are not associated with Index ARM Programs only. Many traditional lenders who offer other types of ARMs also include pre-payment penalties for the same time periods and sometimes even longer.

In Summary:

When interest rates drop many borrowers look for loans that offer alternatives to higher-priced fixed-rate mortgages. Index ARM Programs can provide a viable alternative. Today, with the average homeowner either purchasing or refinancing a home every 5 to 7 years, Index ARM Programs are an advantageous alternative. Index ARM programs allow you control over your mortgage payment schedule with the 4 different payment options. Index ARM programs give you cash flow on a month-to-month basis and lower interest rates relative to other loan programs offered on the market. If you choose the low-start rate for a period of time, you have the advantage of borrowing today's money at a depreciated value years from now due to inflation. This makes Index ARM loans a great tool for you as homeowner, as long as you understand the mechanics.

On the other hand, if you are a homeowner planning to retire soon and living on a fixed retirement income, you may want to consider another type of mortgage that will better suit your needs. Your decision to consider or not to consider an Index ARM Program essentially depends on where you are financially and what your plans are in regard to your home. These are key issues that should determine the type of mortgage you choose.

The Index ARM Program can be a strategic financial planning tool with many possibilities. Many "Baby Boomers" are behind on financial goals they dreamed about years ago. If you are in this category, don't be disheartened because you are in the majority. It's never too late to start. Why not now! If you are a new homeowner in your 20's, I encourage you to get started now by learning how to leverage the largest investment you may ever make. Get an early start on saving for your retirement or your children's college tuition.

In Closing:

Do yourself and your family a favor. Call us today. One of our Mortgage Strategists will answer any questions and prepare a free analysis for you at NO COST and NO OBLIGATION! Contact us today for more information.

Source: Harry Hedaya, Tampa, FL