Working Stiffs Eligible For New, Fast Amortization Loan by Broderick Perkins
A new low down payment mortgage with speedier amortization, automatic paycheck deductions and flexible underwriting terms is designed to build equity faster and save borrowers tens of thousands of dollars over the life of the loan. The Working Mortgage, a Fannie Mae product offered by Santa Rosa, CA-based North American Mortgage Co., could become a popular low-down choice because the mortgage allows weekly or biweekly payments that speed up amortization in three ways. Payments collected weekly or biweekly go into an escrow account that draws interest applied to your loan principle. A weekly payment schedule means several five-week months each year generating a larger monthly payment in those months. Weekly and biweekly payments provide borrowers with interest credit. The daily interest credit makes the new loan relatively unique. "There are very few biweekly programs that offer this. Borrowers get interest credit only if the servicing is on a daily interest accrual basis, which means that when a borrower makes a weekly payment the principle is reduced that day, rather than at the end of the month," said Jack Guttentag, the "Mortgage Professor". Earlier interest payments mean faster amortization and that builds equity faster. A $100,000 mortgage, with an 8 percent interest rate, paid with biweekly deductions earns a home owner an additional $4,000 in equity within the first five years and almost $10,000 in 10 years, according to North American. "People work hard for their money. This loan gets their money to work hard for them," said Judson Croom, president of North American, a wholly-owned subsidiary of the Dime Savings Bank of New York. Other Working Mortgage provisions allow you to: Borrow up to 97 percent of the property's purchase price. Put as little as 3 percent down from virtually any source including gifts, grants, unsecured loan, personal loan, seller financing and 401(k) retirement accounts. "This means you can effectively borrow 100 percent of the home's price," said Lee Farrell, a product manager at North American. Have mortgage payments electronically deducted every week or every other week from your checking or savings account. "Ninety-seven percent loan-to-value is a feature that is widely available on other programs, and biweekly payments are widely available. Payroll deduction is the major innovation of the plan," said Guttentag. The Working Mortgage is only available to you if your employer pays you through direct deposit into a checking or savings account. Approximately 50 percent of U.S. employees offer the option, according to Fannie Mae. The flexible loan also allows you to change the timing of your mortgage deduction should your pay cycle change. If you lose your job you have a variety of options -- you can make payments by mail, continue to have them electronically deducted if you have an account reserve, or you could transfer electronic payments to an assisting relative or friend's account. "Certainly would not have to refinance the loan," said Farrell. Working Mortgage also can accommodate special payment plans for co-borrowers, say a husband and wife or other joint owners. Most loans are co-borrowed. North American will set up separate deductions for each borrower. For example, one borrower could have 40 percent of the mortgage payment deducted biweekly and the other could pay 60 percent with a weekly payment plan. The mortgage's low down payment requirements and flexible underwriting guidelines mean you can qualify more easily for a mortgage or qualify for more money. "Payroll deduction now brings us abreast with developing countries, where it is the norm. In Fiji, for example, it is a requirement on all loans. Weekly payments are an innovation," says Guttentag. | 
