"Home Loans and the Internet" Builder & Remodelor - November 2002

In our last article we discussed flexible portfolio lending in the form of Index based mortgages. However, there are additional portfolio loan programs which merit mention as alternatives to the standard fixed rate mortgage.

The Double Decker mortgage allows the borrower to split the loan total into a combination of product types and amounts. In effect a borrower can obtain fixed rate mortgage financing for any portion of a loan while simultaneously using an adjustable rate mortgage for the remainder.

Let’s use an example of a client I recently worked with on a purchase transaction. In this case the client was a surgeon recently contracted with a highly reputable hospital. The client was purchasing a newly constructed home with a value of $1,550,000 and at the present time needed to finance 90% of the total based upon his current financial situation. However, after taking the time to discuss his future earnings including his position in a private practice, it was clear that over the next three years he could accumulate substantial savings. Based upon this knowledge I recommended the Double Decker mortgage strategy.

We structured the mortgage by taking a fixed rate first of 50% of the total loan, or $697,500.00 at a rate of 6.125% for a monthly payment of $4,238.08. The balance of the loan was taken on a 3/1 ARM (adjustable rate mortgage) at an interest rate of 4.875% for a monthly payment of $3691.23. When compared with a super jumbo rate of 7.5% on a loan amount of $1,395,000.00 for a monthly payment of $9,754.04, we were able to save the client $1,824.73 on his monthly loan payment.

Perhaps most importantly, my client was pleased with the fact that his combined rate of interest would remain low for those years he was accumulating earnings. In addition, once the three years had elapsed, prior to the loan becoming an adjustable, he could pay down this portion of his mortgage with no pre-payment penalties or cost and simply maintain the fixed rate mortgage for the life of the loan.

The above scenario is just one example of how a Double Decker mortgage can be utilized. These type mortgage splits can be used with any combination of loan types offered by the portfolio lender. In addition these loans can be done on a limited documentation basis, as well as on second homes and investment properties. Keep an open mind when determining how to plan your own purchase loan, rate and term refinance or cash out refinance.

For comment and questions I can be reached at (516)935-5600 extension 13.

*The fixed rate super jumbo mortgage is subject to exception by lender for loan amounts exceeding 80% loan to value.

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