Cmg Hoa Realtor Presentation

Home Ownership AcceleratorHome Ownership Accelerator

CMG Home Ownership AcceleratorCMG Home Ownership Accelerator®®

Realtor® Focused PresentationRealtor® Focused Presentation

3-25-10

Copyright 2005-2010, CMG Mortgage, Inc. All rights reserved. Home Ownership Accelerator , the yellow flying house logo, and other marks are registered trademarks of CMG Financial Services, Inc. Content and concepts presented here are proprietary information which is made available for the sole purpose of training and educating CMG-approved agents and their clients, and is non-transferrable, non-distributable, and may not be copied or repurposed. Any other use outside CMG=approved educational efforts is unauthorized, except with the express written permission of CMG Mortgage Inc.


2

Our Parents Spent Their Working Years Trying to Pay Off Their 30-Year

Mortgage.

Right idea. Wrong tool.

Opening thoughts…..Opening thoughts…..


3

Product Trend: Smaller PaymentsProduct Trend: Smaller Payments

LESSPRINCIPAL

MOREPRINCIPAL

BIGGERPAYMENT

SMALLERPAYMENT

15-Yr Loan20-Yr Loan

30-Yr Loan

Bi-weekly Loan

40-Yr Loan

50-Yr Loan

Int. Only Loan

Neg AmOption ARM

3/1, 5/1, 7/1, 10/1 Hybrid ARMs


4

Easy payments, low rates, and...Easy payments, low rates, and...

Price vs Household Income

(Q1 :1987 = 1.0)

Home Ownership Accelerator

5

Debt still out of control. Debt still out of control.

Mortgage debt more than doubled since 2000

Source: Federal Reserve, U.S. Census datahttp://www.federalreserve.gov/econresdata/releases/mortoutstand/current.htmhttp://www.federalreserve.gov/Releases/housedebt/


Conventional Wisdom…Conventional Wisdom…

“A 30-year fixed is a great loan!”

“Lock-in a low fixed-rate today!”

“Your payment never changes!”

“Record low rates!”

6


Wisdom? High Cost of Fixed-Rate Loan StrategyWisdom? High Cost of Fixed-Rate Loan Strategy

• Price tag (Truth in Lending): we try not to look!– A $500K loan at 5.5% interest: = $522K in interest!

• Built-in hedge costs: – 0.50%+/- ($30,000 on typical $300K loan)

• Freddie Mac average “age” of loan: <5 years.– Eight loans in 40 year window: $50K in refi costs

• At the 5-year mark (16% of 30-year term)….– Virtually all borrowers have refinanced– 25% of total interest due has been paid

• 5-year cumulative interest: +81% premium over a 5-year amortization.

– Payment is still 75% interest• Takes 17.5 years to achieve parity on interest/principal payment.

– Only 5% of borrowers will have made extra payments7


8

Today’s Mortgage is #1 Barrier to Building WealthToday’s Mortgage is #1 Barrier to Building Wealth

• Mortgage consumes about half of your net income.– Typical mortgage payment vs income (DTI ratio):

• 33-45% of gross income • Often exceeds 50% of net income.

• Most of payment is interest (or all of it!)• Mortgage always takes priority• Most of us will retire WITH a mortgage• Persistent burden:

– Prevents us from buying up– Prevents us from purchasing more real estate


9

Reducing Interest: The Mortgage Triangle Reducing Interest: The Mortgage Triangle

• People try all 3 ways to reduce interest.– But which one is the most effective?

INTEREST COST

TERM

PRINCIPALMake extra payments – works, but has 3 issues

% RATEUnpopular: 15-year loans

Marginal impact: Rate chasing


10

Accelerating via extra paymentsAccelerating via extra payments

• Problems: – Commitment:

• Extra payments crimp lifestyle!• Hard to stick with it… for 22 years.

– Irreversible: extra payments are “one-way” • Might need that money in an emergency • Over-aggressive pre-payment of a fixed-rate loan could

result in insufficient liquidity.

– Impact: only can use a tiny portion of your resources

• Usually not more than 1/3 of your residual cash• Federal Reserve:

– Only 5% make regular extra payments– Average: $125 (less than 1/3 of cash available)


11

How it looks: piles and holesHow it looks: piles and holes

Bank account: 1%

Home loan: 6%

Income

Expenses

•Prepaying isn’t attractive

•Might need that money

•Can’t get it back


12

What if we could change this?What if we could change this?

Bank account: 1%

Home loan: 6%

Income

Expenses


13

Just move the arrows…Just move the arrows…

Bank account: 1%

Home loan: 6%

Income

Expenses


14

Simple change, big impact.Simple change, big impact.

You could…

• Save thousands in interestand

• Pay off in about half the timewith

• No change to spending habits

TM


15

How it worksHow it works

• You deposit your paycheck into the loan

• Therefore, your daily balance is less.

• Therefore, you save interest.

• Therefore, you have more money for principal.

• Therefore, you pay off faster.

• Notice how we didn’t change your spending?

– For expenses, it works just like a normal checking

account!


16

How does it work?: 5-minute movieHow does it work?: 5-minute movie

On the homeownershipaccelerator.net site below.


17

Highlights from the 5-min movieHighlights from the 5-min movie

HomeOwnershipAccelerator.net


Solves the 3 Big Problems with AccelerationSolves the 3 Big Problems with Acceleration

• Easy to stick with.– Direct deposits into the account– “Set it and forget it”

• Flexible.– Default is always to aggressively attack debt

FIRST• Only loan where you pay principal FIRST

– However, if you have extra expenses, you have access

• Maximize impact– ALL your income can go towards paydown

• Idle cash works for YOU, not the Bank 18


19

Lazy MoneyLazy Money


20

Structure: Line of credit Structure: Line of credit

Initial credit line (10 years)

Credit line (final 20 years), decreases by 1/240 per month

Principalbalance (sample)

Available credit

$500K LINE

$400K LOAN

10 20 30


21

YOU are in Control of the BalanceYOU are in Control of the Balance

Money In (reduces)– Direct Deposit (ideal method)– Bonuses, dividends– Rental property income– Small business income*

• Money Out (increases)– Interest

• Computed on daily balance• Added to principal on due date

– Access to money (equity)• ATM/Debit Card

– ATM (Cirrus/MasterCard®) $1,000/day limit

– ATM charges rebated 6/mo– MC P.O.S. debit card

$2,500/day limit• Unlimited checks• Bill-pay (free)

*See your CPA and tax advisor.


22

Details….Details….

• Line of credit: first lien position– Owner-occupied, primary residences, purchase/refinance– Line amounts: $100K to $2.5million– Initial draw: 25%-97% of the line– Requires 25% down (75% LTV maximum)– 700 FICO – all borrowers– Up to 45% debt-to-income ratio– Rate:

• 1 mo. LIBOR index (=0.23% today) + margin: 2.75% / 3.00% / 3.25%

• Initial rate: 2.98% / 3.23% / 3.48%– Margin improvements up to -0.50% for high FICO and low LTV

• Qualify at Initial Rate +2%, interest-only!• Life Cap: +6% over Initial rate (= 8.48-9.48%)• Minimum rate (floor): 3.5% (everyone is at this today).

– $60 annual fee, waived in year 1.


23

Who is the Ideal customer?Who is the Ideal customer?

• Money-savvy • Positive cash flow• Solid credit• Good money-management habits• Long term view / goal oriented


24

But it’s an Adjustable…But it’s an Adjustable…

• It’s not about the rate!

• It’s about the principal balance!


““Which Sign Would You Rather Have in Which Sign Would You Rather Have in Your Front Yard?”Your Front Yard?”

25

I have 6% APRand paid$400,000in interest





““The Only Loan Where you Pay Principal FirstThe Only Loan Where you Pay Principal First™™””

• All other loans take interest first.• Whatever is left = principal• With the HOA, your paycheck drives balance

down.

• “Even the money for your loan payment helps you save interest, while it waits for your monthly statement to arrive.”

26


27


28


29


30


31


32

Avg Increase= +1.45%/YrAvg Increase= +1.45%/Yr

Avg LIBOR=4.3%...…Plus Margin=7.05%, 7.30%, 7.55%

Avg LIBOR=4.3%...…Plus Margin=7.05%, 7.30%, 7.55%


33

Avg = +1.45%/YrAvg = +1.45%/Yr


34


35


36


37


38


Other typical concernsOther typical concerns

• Property value decline: reduction of line / freezing

• Tax deductibility

39


40

Can my line be reduced / Suspended?Can my line be reduced / Suspended?

• Yes, under certain conditions set forth in Reg. Z.– Specific circumstances, not arbitrary

• See the line of credit agreement for full details. • Biggest concern: Substantial property value decline

• Big difference– 75% LTV and paying down, vs 100% LTV /tapping

equity

• “Never put all of your eggs in one basket”– Home Ownership Accelerator is no different– Maintain financial flexibility to handle any situation– Keep an eye on property value and interest rates!– Consult financial advisor for guidance


41

But I’ll lose my interest tax deduction…But I’ll lose my interest tax deduction…

• Good news…you WILL!

• Interest is not in your best interest!– Pay $3 in interest to get a $1 deduction? – Want larger tax deductions? Get a higher rate!

• Interest is still deductible while you have the loan


Tax deductibility rulesTax deductibility rules

• Acquisition debt– $1 million (married, filing jointly)– Acquisition or improvement– HOA financing/refinancing your home

• Home equity debt– $100,000– Non-acquisition, non-improvement– HOA re-draws (living expenses)– Repaid with subsequent inbound deposits

42


43

Tax deductibility: same rules applyTax deductibility: same rules apply

$400K

$200K

Example: redraw $150K from equity (only $100K is deductible as home equity debt*, unless used for improvements)

$350K

New acquisition debt level(fully deductible)

Orig. acquisition debt basis

Same tax deductibility:- First + HELOC- Cashout refi (Flags in 2010)

- HOA

HOA difference:-Single loan!

Non deductible$300K

*Except under Alternative Minimum Tax rules


More Purchasing PowerMore Purchasing Power

44

Typical Jumbo Loan Home Ownership Accelerator®

Max Loan Amount $2.0M $2.5M

Max. DTI Ratio 40% 45%

Qualifying Interest RateFully Indexed Rate

(about 5.75%)Fully-amortized

Rate +2% (about 5% today)

Interest-only

Payment on $1 Mil loan $5,836 (APR 5.869%)

$2,917 (APR 3.50%)

50% less!

Purchasing power of $150K income

$1.07Mat 80% LTV ($857K loan)

$1.80M at 75% LTV

($1.35M loan)

68% more house57% more loan

Other --

24/7 Access to equityFaster equity buildup

Direct depositAutomatic payment


Healthy/Happy Borrower: Healthy/Happy Borrower: Better for YOUBetter for YOU

• Healthy borrower: more business downstream– Faster equity buildup:

• Post-purchase improvements• Flexibility to take advantage of real estate

opportunities• Equity for future purchases

• Happy borrower: more referrals– 6:1 referral ratio– Only 10% payoff rate in portfolio since 2005!– Borrowers talk! “Backyard barbeque loan!”

45


46

Bottom line: Bottom line: The loan your Clients should know about!The loan your Clients should know about!

• Most powerful home financing tool available!– Superior purchasing power– 3.5% fully-indexed rate– Interest only qualification: higher ratios– Faster paydown / equity buildup– 24/7 access to equity for expenses, AND

opportunitiesSPECIAL WEBINAR OFFER: FREE APPRAISAL!!(GOOD THRU APRIL 30, 2010)Tell the loan agent who invited you to provide your client’s name to me.

SPECIAL WEBINAR OFFER: FREE APPRAISAL!!(GOOD THRU APRIL 30, 2010)Tell the loan agent who invited you to provide your client’s name to me.


47

Thank you!Thank you!


48

ADDENDUM:ADDENDUM:Frequently-asked questionsFrequently-asked questions


““Know Thy LIBOR”Know Thy LIBOR”

• Avg rate of increase, last 3 rising rate periods: 1.45%/yr

• Average duration of last 3 rising rate periods: 26 mos.

• Average LIBOR (historical): 4.3%.• Average LIBOR +2.75% (i.e., HOA) = 7.1%

– Plus HOA cash flow effect - - typical effective rate 3-5%

• Freddie Mac average 30Y FX (historical) = 7.1%

49


Know your (LIBOR) History!Know your (LIBOR) History!

50

Max: 9% Avg: 4.3%Cur: 0.23%

LIBOR+2.75% Avg: 7.09%Fixed Avg: 7.04%


51

Where is my Money, Really? Where is my Money, Really? And is it FDIC-Insured?And is it FDIC-Insured?

• Money is swept against your loan balance daily.– Any intra-day balance is FDIC insured,

– But no end-of-day “pile” to insure.

• Your cash is converted to home equity– Saves interest

– Higher effective yield on your money

• No “pile” anymore - - filling the hole instead. – 24/7 access to your money


52

Thank you!Thank you!

Cmg Hoa Realtor Presentation

Documents

Transcript of Cmg Hoa Realtor Presentation