LAST EDITED ON Jan-27-08 AT 02:48PM (MST)[p]I thought I'd offer a few insights, since I've been in the mortgage industry for the last 15 years.
Investors (i.e. Citibank, BofA, Chase, WaMu, Countrywide, etc.) don't benefit directly by you making a bi-weekly payment, or making annual or occasional payments to reduce your principal. They do, however, all support you in allowing this practice. While they don't benefit financially, it is in their best interest to see you build more equity, as it strengthens their loan servicing portfolio. Investors have to re-amortize your mortgage when you make an accelerated principal reduction, and if you can afford to do so, it is a good idea to do it early in the life of your mortgage, IF, you plan to stay in your home long term. If you expect to move or replace your current mortgage within the next five years or so, you are most probably going to benefit more by using any extra funds to eliminate other debt. If you do decide to accelerate your principal reductions, you'll get the most bang for your buck by doing it in the first few years of your loan term.
Over the last five or six years, one of the most popular mortgages has been the "negative amortization" mortgage. This type of loan had a very bad reputation back in the late 1980s and early 1990s, as many people with those loans made minimum payments that were allowed as one of your four payments options, and this would result in adding the earned but unpaid interest to your principal balance. To make that mortgage product viable to sell again, most lenders gave them sexy names this time, like "pay option ARM, freedom loan, pick-a-pay loans, and so on. Regardless of the name and marketing gimick, these are all neg-am arms. This type of loan was involved in the S&L crisis back in the early '90s and is again a major component of the current mortgage industry mess.
There is/was a simple reason so many of these loans were sold across the country. Investors would pay correspondents and brokers (that is, guys like me and mortgageman) higher rebates to fund these loans. Even worse, if your lender would attach a prepayment penalty period to your loan, he got paid more money -- A LOT MORE MONEY. There is a borrower type for whom this is a good mortgage product, but that borrower represents probably less than 10% of all borrowers out there, most likely a lot less than 10%. Most people who have neg-am arms would have been much better off gettting a 30-year fixed rate mortage instead, but weren't properly counseled by greedy loan officers who couldn't make as much on your loan if you took out a 30-fixed. I refused to provide neg-am loans to almost any client, and lost of a lot of business to other lenders who were too willing to give borrowers these loans, but at least now I can sleep good at night, secure in the knowledge that I've never contributed to any client losing a home due to bad business practices on my part.
If you've been watching the business or financial news at all, you know that Countrywide is in gigantic trouble financially and is being acquired by BofA. What you haven't heard until now is that for much of the last four or five years, Countrywide was the single largest investor in neg-am mortages in the country. A few years ago, it comprised something like 35-40% of their entire funding volume for the year. That is billions of dollars in loans. AND, now they're in deep trouble. This problem isn't just SUBPRIME loans, but also very much neg-ams, AND IT IS GOING TO GET WORSE BEFORE IT GETS BETTER.
I could go on for a very long time, but everyone will fall asleep if I do.
I will just close with this offer, and I'm sure that Mortgageman will do the same, if anyone who reads Monster Muleys needs any advice about your mortgage, I'll be glad to consult privately with you, at absolutely no cost, obligation or expectation of anything at all, other than saying thank you when we're done. If you're in great shape, we'll be happy to tell you, if you might benefit by considering improving your situation, we'll counsel you on that and if you're having problems with your current loan and don't know how to manage your way through the problem, we'll advise you on how to best proceed to protect yourself and work through it. If anyone on here needs advise, you have at least two new sources you can turn to, confidentially. Just private message either of us.
What do you say, Mortgageman? I'm sure you'll second this advice/offer.
Maybe in the future I might look into it though.
