Hi All –

So this was from an interesting article in my local newspaper. It’s a column that regularly appears in the real-estate section from a local mortgage broker. It’s marked as an advertisement but the article regularly appears each Sunday and is a blend between education and a marketing ad. Normally the question and advise are so-so but this weeks caught my attention.

Here the excerpts:

“Q. Last week you mentioned a new loan program that functioned like a home equity line of credit and could help to pay the home off early. Can you tell me more about It?

Basically, you have an adjustable rate mortgage with a low margin that offers a competitive rate in good and bad market conditions alike. The lender is affiliated with a bank that becomes the FDIC insured reposi¬tory for your savings / checking accounts. They become your bank and they are a credible institution. When the lender is holding funds in your accounts, those kinds held on account are SUBTRACTED from the princi¬ple amount of mortgage that you pay interest on each month. The result is that you are paying your loan off early because you are being charged interest on a lesser amount than you actually borrowed.

The overall risk appears to be exposure to somewhat less rate volatility than today’s average adjustable rate mortgage when averaged over ten years. With the early Payoff/equity-building features on board, the small average rate volatility does not seem like a major concern. for those borrowers who have an average balance in savings and checking that is at least $10,000 to $20000. Those with no savings or checking would see no extra benefits, other than a good adjustable rate mortgage with the features / benefits available and built-in when savings and checking accounts grew.”


The article continues with an example:

“Let’s say, for example, that you had 200,000 in combined savings and checking. You borrow $500,000 at an interest rate of 6%, which would give you a payment of $2998 on a 30 year amortized loan and a payment of $2500 on an interest only loan. The new loan program would charge only $1500.00 per month in interest and additional monies that you paid would be deducted from principle, which reduces the amount owed much faster than the terms offered in conven¬tional financing programs available to date. In this example; the borrower, with an average rate of 6%, could pay the house off in TEN YEARS by paying $3331 per month. That’s a pretty good savings when you figure that a 15 year loan at 6% would carry a pay¬ment of $4220. With $50,000 in savings and checking, your average payment would be $3796 which is still over $400 per month less than the fifteen year fully amortized payment on a 15 year fixed at 6%.”

The article also stated:

“This loan is not for everyone, but it could work out to be a boon to many, with the benefits expanded exponentially for those with larger savings. Just think, if you had a combined average balance of $300,000 in savings and checking account and you borrowed $300,000.00, you could pay it back INTEREST FREE.”

So I’m interested to know what the FWFers here think about it. I didn’t find any references to a mortgage like this discussed in the forums. The article referred to this as a “hybrid” mortgage but I have not had much success goggling for that term. There were some links in Google from the UK under the term “Offset Mortgage”. I’m not sure if the US versions operate the same.

I have some savings that may make this worth the effort, but I haven’t quite figured out what mortgage rate would equate to a better deal that ED or ING. I benefiting from the tax deduction for the interest on the mortgage but I also have to pay taxes on the interest earned in my regular saving account. And advice on how to approach this would be greatly appreciated.

Although I prepay on my mortgage I’ve been hesitant to devote a large chunk of my savings to the mortgage because it ties it up so much. I’m thinking a product like this might help be keeping my money liquid and at the same time allow me to off set the interest charges on my mortgage?

Does anybody know how or where I can find out more about this type of mortgage?

Thanks -

Interesting post, OP...

This looks like a shorter-term ARM (i.e., less than 30 years) with an offset feature. Do you have a link to either the original piece, or anything describing more details RE the terms of this mortgage? The example is nice, but precise terms would make it easier to evaluate its attractiveness....

This sounds somewhat similar in practice to the strategy I've discussed previously here of using a big HELOC as a "reverse savings account." With savings and checking accounts being "offset" against your "mortgage," you will virtually always enjoy a bigger rate of return than if you have a larger HELOC balance an a separate savings account.

Unfortunately there is no on-line version of the article. I have a PDF copy of the article, but I don’t know how to post that up to FWF. The only other parts that I left off were:

You could pay off in ten years by making $2500 per month payments, rather than the $2532 per month you would pay on a normal FIFTEEN year loan, for a savings of roughly $155,000.

For those who want to BUY a home and who want to retain their savings and get the benefit of lower payments at the same time, this loan offers lower monthly payment options with NO NEGATIVE AMORTIZATION as long as there is a healthy balance in saving and checking.

The obvious downside of this loan program is that the less interest you pay the less mortgage interest deduction you will have on your tax return, which means that Uncle Sam will be paying a smaller share of your overall house payment under the new loan program. For some, who would still achieve overall benefits, this is not an Issue and for some, who would-see reduced benefits, it will be. A personal evaluation is in order for all interested parties so that individual benefits can be accurately calculated.”

The author was Jim Chubb and it appeared in the Sunday edition of the Santa Cruz Sentinel www.santacruzsentinel.com.. The author is affiliated with www.pacificinland.com .

Otherwise no other specific information was given.

I was able to find something similar here:

http://www.hsbc.com.tw/tw/whatsnew/smortgage/default.htm

heres the WF product
https://www.wellsfargo.com/mortgage/refinance/loans/descriptions/hama.jhtml

if the link doesnt work its called the Wells Fargo Home Asset ManagementSM Account

Whats unique about the WF product is that they look at comparable values and as home values increase, they INCREASE YOUR LINE OF CREDIT periodically. Of course, they might decrease if the market declines. article:

https://www.wellsfargo.com/mortgage/articles/home_asset_article.jhtml

Dave got to the point. You can just pay down/off your mortgage and get a HELOC. One difference is interest rate, you can compare the rate and choose the one offering lower rate. Another difference is HELOC only offering a 10-year draw period which could mean you need to refinance to a new HELOC in 10 years. The third difference is that HELOC is IO which provides more flexibility, which may not mean much if you have a large savings. HELOC does offer you the capability to write checks, so it is a checking account by itself; it rewards you with a rate of prime +/- some, so it is a savings account.

If 10-year is a period long enough for you, HELOC sounds a better option since no closing cost is required in most cases.

DaveHanson said:Thanks for following up with what you could, shtimseht.

It notes that the loan is priced at a margin of 3.25% above the 1-month libor. Figures on that index are here , and they indicate that the loan would have a rate of around 7.7% as of now.

So basically, you're getting a 7.7% HELOC, while paying the full closing costs of a 1st mortgage. The convenience of having a checking account built into the HELOC is nice, but could certainly be better duplicated by devising a similar strategy manually via a HELOC, a checking account, and funds transfers.

I don't have a mortgage but if I ever needed one Salem Five bank has a interesting product.

Mortgage > The revolutionary Ultimate Account...

How does it work?


By combining your mortgage, checking account, savings, and home equity line of credit, the Ultimate Account can help you make your money work harder and reduce the amount of interest you pay on your borrowing. It's very simple, but the effect it can have on your finances can be quite amazing.

And since the Ultimate Account is like a normal checking account, you have access to your cash anytime you like. It's the same with your savings - when you need them, they're there.

It's a mortgage and checking account combined!
The Ultimate Account serves as your first mortgage. Salem Five finances up to 80% of the value of your home with the Ultimate Account. Then, instead of depositing your paychecks, bonus checks and other funds into a checking account or low-rate savings account, you make deposits into the Ultimate Account.


When you need funds, your Ultimate Account is a checking account. You can write checks, access funds with your debit card, or pay bills online.
Your paychecks can be direct deposited into your account each pay period and will greatly reduce your principal balance.
The home equity component of the Ultimate Account allows you to access all of the funds in your account (up to your credit limit) anytime you need them.
Your deposits work for you
Every Ultimate Account deposit goes directly to reduce your loan balance until funds are needed. And the lower your loan balance - the lower your interest expense, so you start saving immediately. Until you need the money, your deposits stay in the mortgage - so you're effectively "saving" the difference between your mortgage rate and what it would otherwise earn in a checking, savings or money market account.


With the Ultimate Account you'll earn the equivalent of a mortgage rate of interest on your checking and savings. You'll get a competitive rate of interest based on the LIBOR index plus 1.50% APR.
For example, in October, 2005, the one-month London Interbank Offered Rate (LIBOR) was 3.88% so your deposits in the Ultimate Account would have the effective savings rate of 5.38%. If you would otherwise keep $2,000 on average in your checking account, you are not only reducing your mortgage balance faster (by another $2,000 per month), but also effectively earning your Ultimate Account interest rate on your savings.
All deposits to your Ultimate Account are treated as payments to your mortgage loan. By depositing your paychecks, savings and other funds into your Ultimate Account, you immediately reduce your loan principal balance by the amount of your deposit.
It's Simple!
To learn more and find out if the Ultimate Account is right for you:
Call us at 1-800-850-5000 or visit any branch location.
Click here to locate a Loan Officer that you can talk to.
Email Us anytime to request additional information.
Available in Massachusetts only
Use the links below to find out more:



Salem Five

scott1961 said:

You'll get a competitive rate of interest based on the LIBOR index plus 1.50% APR.



OP's was LIBOR plus 3.25%.


LIBOR is 4.5720%, so +1.5% is 6.072%. Looks like a good deal since prime is 7.5% right now. I haven't seen any HELOC's at prime -1.5%.

didYOUsearch said:.

the downside of this one is its a volatile 1-month LIBOR based ARM. you cant lock in a fixed rate. would be nice if you could get something like this in 2nd position behind a fixed rate 1st.


I have never held a mortgage and don't really even know what HELOC is, I am assuming it stands for Home equity line of credit? I am thinking of buying a larger house and had planned on paying cash for the difference but thinking maybe I could take advantage of this offer. The 1-month Libor volatility could be offset for me as I have that Platinum Cash account with them and since I am grand-fathered in I will continue to get the full 1 month Libor rate on that account.

mhesidence said:I haven't seen any HELOC's at prime -1.5%.

They're out there from time to time - Spencer Savjngs Bank Heloc at Prime -1.5%.