17-Year-Old Firm Cites Longstanding - But Sometimes Forgotten - Lending Practices That Reduce Monthly Mortgage Payments by as Much as Half That of a Traditional Mortgage
MISSION VIEJO, Calif., March 16, 2006 — Many prospective California homebuyers are leaving the Golden State to get more for their money in neighboring states before evaluating all of their viable lending options, according to SMR Financial, an Orange County mortgage firm that specializes in placing consumers in homes from $1 million to $10 million and up.
As housing prices continue to appreciate in high-demand urban areas such as metro Los Angeles, San Francisco, Silicon Valley, San Diego County and Orange County, many bewildered California homebuyers and homeowners are moving to states such as Arizona, Oregon, Nevada, Idaho and Washington where both new and older homes are largely less expensive, per square foot, than homes in California.
However, the pronounced rates of appreciation in California that are driving homeowners away can also help them purchase houses that may, at first glance, be out of their budgets. Appreciation is the mortgage industry’s long-running catalyst for negative amortization or deferred-interest loans. Deferred-interest loans allow homebuyers to make lower monthly mortgage payments, increase their buying power and free up income that can be re-invested or re-purposed.
Under a deferred-interest loan, a homeowner essentially pays a nominal monthly interest rate on a mortgage (e.g., .1 percent or less), shifting much of the interest to the aggregate balance of the loan - or the end of the loan. Theoretically, under a deferred-interest loan, the annual appreciation of a home in a growth market such as California will be greater than the annual deferred interest, leaving homebuyers in the black over the life of their mortgages or if they sell their homes in the near term.
"There’s this perception that California’s major urban centers are just too expensive for most people, including people who are income-rich and savings-poor," said Sean Reynolds, president of SMR Financial, which works to cut traditional monthly mortgages by approximately 50 percent. "That is, to some degree, true - if homebuyers remain bound to traditional lending options. If, however, they get a little creative and make the lending process work for them, then their options really begin to open up."
Homebuyers typically purchase their homes with fixed-rate loans from large national banks that are generally less apt to take on the relative risk of deferred-interest loans, Reynolds said.
Both the consumer and the lender take on a degree of risk under deferred-interest loans, Reynolds said. He added, however, that short of a near-catastrophic and unprecedented 30-percent correction of the California housing market, consumers in historically high-demand markets are generally safeguarded from the risks associated with deferred-interest loans.
"The amount of money that homebuyers defer is typically a fraction of what they gain through appreciation," Reynolds said. "And given that most people never pay off their mortgages or sell their homes in a matter of years, it certainly makes sense for people to free up some income from their mortgages and diversify their investments."
About SMR Financial
Based in Mission Viejo, Calif., SMR Financial is a boutique mortgage firm that focuses on providing concierge-level service and helping consumers purchase California dream homes with market values of approximately $1 million to $10 million.
Contact:
Sean Reynolds, President
SMR Financial
888.766.1751
949.463.5500 (cell)
sean@smrfinancial.com
http://www.smrfinancial.com
