A COMPARISON BETWEEN NEG AM LOANS AND TRADITIONAL LOANS

The key points when considering a NEG AM loan are the following:

1.      Savings from the low interest rate.

2.      Interest rate trends of traditional loans (i.e. 5 YR Arm, 30 YR Fixed etc.).

3.      Deferred Interest Added to Your Loan Amount.

4.      Home appreciation and current LTV (loan to value).

5.      Costs.

1) Savings From The Low Interest Rate

With your low rate of 1.25% you can save hundreds of dollars per month and thousand of dollars a year on your mortgage payment.

The following chart illustrates the savings with this type of loan:

With this monthly savings you can put this $1600+ in your own POCKET in CASH now, rather then give it to the mortgage company. This is a great way for you to maximize your cash flow.  If you want to maximize your cash even more then you can take this cash ($1,673) and invest it and make money on your money.

2) Interest Rate Trends Of Traditional Loans

The interest rate for traditional loans has been creeping up gradually for the last year. The forecast is that rates will continue to rise over the next few years.

Take a look at Freddie Mac for the latest mortgage rate trends

http://www.freddiemac.com/dlink/html/PMMS/display/PMMSOutputWk.jsp?week=12&ending=20050324

3) Deferred Interest Added to Your Loan

The deferred interest that is added to your loan amount is the difference between your low rate payment (1.25%) and the Interest-Only payment (6.15%). This difference will be added to your loan principle every month and every year, if you choose to pay the 1.25% rate.

Amount added to Loan Principle per Year = $14,862

Even though you added $14,862 to your loan principle in the first year, you have saved $20,076 during that same time. That is a gain of $5,214.

4) Home appreciation and current LTV (loan to value).

Another reason why the NEG AM LOAN (Deferred Interest) is so popular, especially in California, is that this increase in your loan amount is even lower than the average inflation, let alone the average appreciation of the property values anywhere in California.

According to the California Realtors Association, the median price of an existing home in California in February (2005) increased 20.4 percent compared with the same period a year ago. In a separate report covering more localized statistics generated by C.A.R. and Data Quick Information Systems, 96.6 percent or 371 of 384 cities and communities showed an increase in their respective median home prices from a year ago.

Source: California Association of REALTORS

For example, a home purchased in 2002 for $400,000 with a 20% annual appreciation is now worth $691,200. A 20% annual appreciation has been a common occurrence in CA.

5) Costs

The costs for a deferred interest loan are less than the traditional loans. On purchases, the deferred interest loan is a no points loan. The broker does not charge anything. The costs are: escrow, title, appraisal etc. These are your traditional and common costs. Every purchase loan has these costs. On refinances, it is a no costs, no points and no fees loan. The client pays nothing to refinance.

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