Interest Only - www.visionmortgageco.com

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"Armed with lower house payments:
Products aimed at putting financial
control into borrowers' hands"
by Lisa Y. Taylor

Vision Mortgage Company, Ltd.
proudly presents
The Interest Only Home Mortgage

(Note: A detailed explanation of the Interest Only Program is available by viewing our “hidden web page" Contact your Vision Mortgage Company, Ltd. loan officer at 210.348.0077 for the access code of the hidden page. You will find a very detailed explanation of the index, the margin, charts on the movement of the index, and ways that you can use this program as an investment vehicle.)

The Interest Only (IO) mortgage program is rapidly becoming the most popular set of mortgage loan programs in the industry. The reasons for the popularity are varied.

Some consider the significant cash flow differential the most important feature. Others feel that the ability to access the lowest possible interest rate in the market place is the over riding reason for choosing this product. Still others like the flexibility to make a minimum payment while allowing any over payment to go directly against the principal balance.

As you consider the IO product you will need to make up your own mind as to which reason may be more important. Here are some ways that you might decide to utilize this incredible variable interest rate product.

Purchase and Non-Cash Out Refinance Transactions

The IO program allows for purchase money and non-cashout refinance (no home equity loans allowed in Texas; Colorado law allows for home equity transactions—call us for details). Borrowers can choose from five-, seven-, or ten-year IO programs. The two most popular choices have been the five- and ten-year plans. Below are some of the features that surround the ten-year product:

	Fully indexed LIBOR product with rates as low as 5.75%. (Rates are subject to change without notice.)
	A low margin (the amount that is added to the LIBOR index to determine the new rate on adjustment).
	No negative amortization (an amount added to loan balance due to the monthly mortgage payment paid not being sufficient to pay the required principal and interest on the scheduled mortgage loan).
	95% LTV (loan to value) to $400,000 with mortgage insurance (MI).
	90% LTV to $500,000 with MI.
	Loan amounts to $1.5 million.
	Debt to income ratios (monthly payment plus monthly debts divided by gross income) up to 50%.
	Minimum 620 middle FICO score of Primary Wage Earner (the borrower earning the most monthly income). Check with your Vision Mortgage Company, Ltd. representative to determine your individual FICO score.
	Minimum 700 middle FICO score if loan is greater than $1 million.
	100% CLTV's (combined loan to value) with all financing considered are allowed with 650 score. Same lender will do both loans or outside--second liens okay.
	95% LTV available on cashout loans. Vision Mortgage Company, Ltd. offers these loans in Colorado only.
	Fannie Mae condos, detached townhouses, and attached Planned Unit Developments (PUD) are treated as single family residences.

Some of the features that are offered by the five-year IO program are:

	Lower FICO score thresholds for certain product lines.
	STATED income (no income verification) programs allow flexibility for wage earner and self-employed customers.
	Investment/Rental property IO loans are allowed.
	Exceptions allowed due to portfolio nature of this particular investor’s funding.

New Construction and Rehab/Remodeling Financing

If you are considering building a new home or simply refurbishing and remodeling your existing home, you will want to consider the IO loan program. There are specific ways we approach both.

There’s a old saying about diners. “Eat where the trucker’s eat, they know all the good places.” Well, if that axiom holds true for the home building industry, you will want a loan program that is rapidly becoming the favorite of homebuilders throughout Texas, the IO program.

The IO program for new construction is facilitated by the two-time close construction loan program as follows::

	You meet with your Vision Mortgage Company, Ltd. loan officer and complete the loan application (available by clicking here). Submit the checklist items so that we can begin our work. (Click here for the checklist of items needed.)
	The credit report is ordered and reviewed at your initial visit. Once we determine the minimum criteria is met, we order the property appraisal. Plans and specifications that define the scope of the work to be performed are submitted along with a check for the appraisal order. Ask your Vision Mortgage Company, Ltd. loan officer for the estimated fee amount. This procedure is also true of major remodeling projects. The appraisal is especially important for determining the maximum LTV.
	Typically, as soon as the appraisal is completed and the majority of the checklist items are received, (income and asset information) we are ready to issue our “take out” commitment letter. This letter assures the interim lender that we “will take them out of their interim position” once the property has been completed. In concert with this step, the home builder or remodelor has been in contact with the interim lender to satisfy any conditions they my have relative to the financial institution’s requirements.
	At this point Vision Mortgage Company, Ltd. would present our loan package to the interim lender who processes and closes the interim loan. A set of interim closing fees will be associated with the primary closing . You will want to check with your interim lender on exactly what these fees will be as they will not be a part of our permanent loan disclosure. Construction can then begin by the builder or remodelor. This is a very important point. Up until this point, the contractor can not do any work to the site as it would have a tendency to spoil the lien priority under Texas laws.
	Construction commences. Within sixty days of the end of construction Vision Mortgage Company, Ltd. reactivates your file. It is important that the borrower and builder coordinate with us so that we can update the appropriate paperwork at the “back end” of the construction period. This means that we essentially go through the work process twice. Once the construction is complete, we pay off the underlying lien(s) and close your permanent loan with our IO investor. During the construction process interest accrues on the amount of loan that has been extended on the project. This amount is billed monthly to the homeowner. For the purpose of estimating, you can expect that the amount of interest paid during a six-month construction project to be approximately 1.75% of the overall loan. For example, over six months, total interest payments on $100,000 would be $1,750. Interim interest payments start off small at the early stages and then increase as the loan is extended.

Note: The interest-only aforementioned procedures relate to new construction or remodeling programs the same as for our principal and interest pay off programs.

The following chart illustrates the approximate payments that are associated with an IO over a traditional mortgage loan. It demonstrates the tremendous cash flow differential.

Monthly Mortgage Payments (30 year amortization) Based on the Indicated Interest Rate

	IO Monthly	IO Monthly	Traditional	Traditional
Loan Amount	4.00%	4.50%	6.00%	6.50%
50,000	$166	$187	$299	$316
100,000	$333	$375	$599	$632
150,000	$500	$562	$899	$948
200,000	$666	$750	$1,199	$1,264
250,000	$833	$937	$1,498	$1,580
300,000	$1,000	$1,125	$1,798	$1,896
350,000	$1,166	$1,312	$2,098	$2,212
400,000	$1,333	$1,500	$2,398	$2,528
450,000	$1,500	$1,687	$2,697	$2,844
500,000	$1,666	$1,875	$2,997	$3,160
550,000	$1,833	$2,062	$3,297	$3,476
600,000	$2,000	$2,250	$3,597	$3,792
650,000	$2,166	$2,437	$3,897	$4,108
700,000	$2,333	$2,625	$4,196	$4,424
750,000	$2,500	$2,812	$4,496	$4,740
800,000	$2,666	$3,000	$4,796	$5,056
850,000	$2,833	$3,187	$5,096	$5,372
900,000	$3,000	$3,375	$5,395	$5,688
950,000	$3,166	$3,562	$5,695	$6,004
1,000,000	$3,333	$3,750	$5,995	$6,320

The difference between your traditional loan payment and your interest only loan payment can be considered cash flow differential. Remember that you can utilize the cash flow in many different ways. Here are just a few ways to consider:

	You can use the cash flow differential to add to your child’s college fund. Or you might decide that immediate private school tuition is a great place to invest your cash flow.
	Consider putting the money into a variable annuity. Some funds guarantee no principal reduction with guaranteed minimum yields of 8 to 10%, while others have experienced recent yields as high as 38 to 40%. Find out which is right for you by attending our next Systematic Interest-Only Variable Investment Program (our VIP Seminar--see the Calendar page).
	Buy company stock. Contributions to company 401(k) via stock purchases are excellent ways of increasing you yield. Remember, if your employer matches you initial investment you just realized a 100% return on your investment—don’t pass this opportunity by.
	Buy a more expensive house! Real estate has always been a fantastic hedge against inflation. If your initial plan was to purchase a home with a traditional payment (principal and interest) of about $1,500 per month you would be considering a $250,000 home. The interest only program allows you to consider a $600,000 home using the same initial payment criteria. Given a standard rate of property appreciation of 6% per year, a $250,000 home would be worth about $334,550 in five years. A $600,000 home would be worth about $800,000 in five years. The presumed “profits” over the very short run of five years totals in excess of $115,000. This is without consideration to the quality of life improvement and other associated values.
	Make that added improvement to your home without impacting your payment. In fact, if you are converting from a traditional mortgage to an IO program mortgage, your payment will likely decrease.

The Basis for the Interest Only Program

The IO programs are all based on the LIBOR. The term LIBOR is an acronym for "London Interbank Offered Rate", and is the interest rate offered by a specific group of London banks for U.S. dollar deposits of a stated maturity. LIBOR is used as a base index for setting rates of some adjustable rate financial instruments, including Adjustable Rate Mortgages (ARM's). A history of the LIBOR rates can be found at the following URL address: www.hsh.com/indices/libor00s.html.

The LIBOR is the index. The margin is a set number that is added to the index. The sum determines the interest rate for the next period until the rate is reviewed again. Vision Mortgage Company, Ltd. has researched the marketplace so you do not have to. Our broker and wholesale sources offer the most competitive margins in the market.

The reason the margin is so important is that while an initially offered rate may seem low, if the margin is excessive, the next rate adjustment may not be favorable. If you choose a loan with a higher margin, this may negate some of the initial reasons for choosing the IO program.

Your Vision Mortgage Company, Ltd. loan officer will have a great deal more information for you. We are anxious to be of service and look forward to speaking to you soon. Call 210.348.0077 today!

You may also wish to visit our Calendar page for the upcoming Systematic Interest-Only Variable Investment Program (VIP) seminar. Seating is always limited and reservations are a must.