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Make
your money work for you while you pay off your mortgage. |
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Be
proactive - get a full assessment, and stay financially
healthy. |
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Samples
based on real client figures. These great results could
be yours! |
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Educate
yourself on leveraging your equity to grow wealth. |
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We
have partnered with some of the best agencies and planners
in the business to assist our clients in making educated
investments. |
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Glassary
Accelerated Debt Reduction:
Paying down the balance of the mortgage faster than the
terms of the mortgage program require.
Annual Equity Review:
A once-yearly comparison of a homeowner’s home value,
equity, debt, interest rate, and mortgage program against
the current rates and programs available
to determine the right time to borrow equity, refinance,
sell, or purchase additional property.
Constant Prepayment Rate (CPR):
Established by the Public Securities Association, the
CPR assumes increasing prepayment rates for the first
30 months of the lifetime of the loan and constant rates
for the months thereafter. The standard model works as
follows: starting with an annualized prepayment rate of
0% in month 0, the rate increases by 0.2% each month,
until it peaks at 6% after 30 months. From the 30th month
on, the model assumes an annual “constant prepayment
rate” of 6% (Source: Wikipedia)
Debt Optimization: The
process of analyzing and comparing current debt structure
to today’s best options. The most common strategy
is to reposition equity to pay off auto loans and other
non-tax preferred debts. This service is recommended annually
to reduce mis-consumption of debt.
Equity Management and Optimization:
A process to analyze equity to increase liquidity, rate
of return, and diversification of assets. It is advised
that only the homeowner or the financial
planner recommend this strategy. Most mortgage professionals
do not have the expertise to suggest or manage this approach
without expert advice from the asset advisor and/or from
the
homeowners themselves.
Equity Repositioning Analysis
(ERA): An ERA allows mortgage
planners to show homeowners how much money they would
save if they were to “reposition” their equity
in another loan structure.
Freedom Account:
A bank or investment account, separate from the mortgage,
in which the homeowner saves enough money to either pay
off the accumulated option ARM debt at the recasting point
or to pay down the mortgage faster than the terms of that
homeowner’s mortgage require.
Freedom Payment:
The regular, continuous payment, monthly or otherwise,
that the homeowner makes into his or her freedom account.
Freedom Point:
The point in time when a homeowner’s assets exceed
his or her debts, and when paying off the mortgage becomes
a strategic financial planning decision. Traditionally,
this was accomplished when a homeowner paid off his or
her home-that magic moment of owning the home without
a mortgage loan.
Freedom Point Review:
A proactive service that analyzes the homeowner’s
current number of years to achieve the freedom point,
based on the homeowner’s savings rate and/or his
or her mortgage prepayment trend. The homeowner should
review the freedom point, annually.
Fully Indexed or Effective Rate:
This interest rate is the sum of the current index rate
on an ARM, plus the margin.
Index:
An indicator that is typically measured by an average
of an economic variable over a certain period of time.
Interest-Only Mortgage:
An interest-only loan enables a borrower to pay only the
interest on the principal balance of a mortgage loan for
a set term, leaving the principal balance unchanged. Interest-only
loans are popular ways of borrowing money in order to
buy an asset that is unlikely to depreciate much and which
can be sold at the end of the loan to repay the capital.
For example, second homes or rental properties.
LoanNOW Opportunity:
This is a short-term opportunity that a mortgage planner
can take advantage of quickly that will help him or her
to close a loan within a subsequent 30 day period.
Lifetime Cap:
The amount that the interest rate is allowed to increase
during the term of the mortgage.
Loan Officer:
A certified mortgage originator who transacts a loan with
a customer.
Margin:
The amount added to the index on an ARM to determine the
interest rate at each adjustment. Generally, the index
remains fixed over the life of the loan.
Maturity:
The period of time over which the loan balance must be
paid in full.
Maximum Loan Balance:
The maximum amount to which that the lender will allow
the loan amount to increase. The maximum loan balance
is typically a percentage of the original loan amount.
Mortgage Plan: A
professional report designed to help homeowners to make
informed decisions that integrate with their personal
financial plans and dollarize the total mortgage cost
over time.
Mortgage Planner:
A financial professional who is dedicated to helping homeowners
make informed mortgage decisions that integrate with their
personal financial plans. Mortgage Planners do not sell
loans; they change lives.
Mortgage Planning:
The process of analyzing a homeowner’s debts, assets,
and equity with the goal of optimizing debts and equity
to achieve the homeowner’s short-term and long-term
financial goals. In summary, to help homeowners reduce
the time that it takes to reach the freedom point by making
intelligent and informed decisions.
Mortgage Program: A
specific type of loan program, such as interest-only,
5-year ARM, negative amortization ARM, or traditional
30-year fixed.
Mortgage Review:
A monthly service that helps a homeowner to track his
or her current interest rates and mortgage program, and
to compare it to the current market conditions.
Mortgage Strategy:
A specific strategy of integrating a mortgage program
into a personalized financial plan.
Examples:
a) traditional 30-year fixed rate, and accelerated debt
reduction
b) interest-only, and invest the difference
Mortgages Under Management: The
process of managing client relationships and their mortgages.
Negative Amortization:
The opposite of “Amortization,” which means
that monthly payments are large enough to pay the interest
and reduce the principal on the mortgage. Negative amortization
occurs when the monthly payments do not cover all of the
interest costs. When negative amortization occurs, the
interest cost that is not covered is added to the unpaid
principal balance. This means that even after making many
payments, the borrower could end up owing more than he
or she did at the beginning of the loan. Negative amortization
can occur when an ARM has a payment cap that results in
monthly payments that are not high enough to cover the
interest that is due.
Option ARM:
Option ARMs give borrowers the flexibility to make their
deferred interest payments monthly, yearly, or over many
years for better cash-flow management. The primary benefits
are to give borrowers the choice of either deferring their
interest to achieve financial goals faster, such as the
possibility of reducing the years to reach the freedom
point-the moment when a homeowner’s assets exceeds
his or her debts, and when paying off the mortgage becomes
a strategic financial planning decisionor to help real-estate
investors increase their cash flow.
Pay Rate:
The interest rate used to calculate the mortgage payment.
The pay rate and the interest rate may not be the same.
Payment Cap: The
limitation on increases or decreases in the payment amount
of an adjustable-rate mortgage. The payment cap is usually
7.5% annually.
Rate Watch Report:
A monthly or quarterly review of current interest rates
and how a client’s existing loan rate and program
compare. The purpose of a Rate Watch analysis is, to determine,
by looking at the interest rates alongside a homeowner’s
goals and needs, whether the time is right for a homeowner
to refinance.
Pull-Through Rate:
Also called the “past client” pull-through
rate, it is the percentage of business that comes from
past clients. The higher the pull-through rate, the more
residual income (or repeat business from past customers)
a mortgage planner can make.
Recast Point: The
date when a homeowner with an option ARM has his or her
minimum monthly payment significantly increased because
the principal balance increases to more than 110% of the
original amount borrowed. It is highly recommended that
option ARM homeowners save money monthly in a freedom
account so that the recast point does not increase the
time required for them to achieve their freedom point.
Many times, a recast can cause the client’s payment
to increase by as much as 80% to 120%. If homeowners are
not able to increase their savings rate and increase their
investment assets, this type of payment shock can be devastating.
Recast Point Review: Part
of the annual equity review, the RPR works in conjunction
with the freedom point review, taking into account a homeowner’s
projected recast date and the lump sum payment that will
be due at that time in order to determine the appropriate
point at which to refinance and/or to ensure that the
homeowner has enough money in the freedom account to pay
the recast, if he or she should decide to do so.
Residual Commission:
Commissions earned from new loans made to past clients.
Savings Rate:
The rate at which the homeowner is setting aside money
by investing in a freedom account. The rate should be
enough for the homeowner to reduce his or her freedom
point or pay off the lump sum recasting point, and continue
saving toward the freedom point.
Start Rate (a.k.a. teaser rate):
The initial interest rate charged on the loan. This rate
typically lasts from one to three months.
Stop Period:
Typically, the period in which the lender will no longer
allow a payment other than the fully amortized one.
Suitability:
Means the borrower should be able to afford the monthly
payment after the recasting point, and should be saving
the difference in monthly payments between the lowest
monthly payment of the option ARM and the traditionally
amortized mortgage program. Mortgage planners help borrowers
to decide on optimization strategies with suitable features
and programs.
Term: The
period that is used to calculate the monthly mortgage
payment. The term is usually the same as the maturity.
Total Cost Analysis: A
total cost analysis helps to create a true loan comparison
by showing, side by side, the total cost of each loan
option, and not just the monthly payments or interest
rates.
Traditional Mortgage:
A fixed or variable mortgage, set for a certain period
of time, such as 30 years or 15 years.
Unique Experience:
This is what a mortgage planner gives to customers each
and every time they conduct transactions.
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