Casino Connection Atlantic City

Wisdom For Our ‘Sub-Prime’ Times

by Rick Anderson

Whether buying a house or refinancing a mortgage, you’re either going to be your own best friend or your own worst enemy, depending on:

a) how well you do your homework—that is, how well-thought out and detailed you've listed your financial goals before you make the final decision with your broker; and

b) how well you’ve made sure that broker has done his or her homework! It’s up to you to do this, now more than ever in this crazy sub-prime lending time, when predatory mortgage lenders have sold home buyers more house than they could afford, and just as much house as they were willing to say “yes” to.

I have two points of advice about that, one old and one relatively new.

Point 1: House hunting (or mortgage hunting) begins with planning. Simply put, it’s determining how much house you can afford to buy. Know your affordable price range, and stick to it. Don’t be swayed by the emotion that a prospective new house can create. The “right-brained” spouse needs to let the “left-brained” spouse take the lead here, because that emotional attachment isn’t going to help you much if the monthly bills aren’t being paid.

And the affordable price range—how’s that derived? That should be the natural outgrowth of just figuring out your monthly income, expenses and home budget. Simple enough? Problem is, hardly anyone actually does this, or sticks to it. But if you do, you’re ahead of the game.

Point 2: There’s a particular type of optional ARM (Adjusted Rate Mortgage) out there known as a COSI Loan.

COSI stands for Cost of Savings Index, and it’s this factor that makes a COSI different from other ARMs, many of which tend to be too risky for budget-watching new home buyers or refinancers.

ARMs tend to “adjust” (the interest rates go up and down because they’re tied to a fluctuating index like the Prime Rate), but the COSI uses the same index that banks use when they lend money. The Cost of Savings Index is the percentage that banks pay on checking and savings accounts, and CDs.

That makes for stability. Another distinction: the loan re-amortizes twice a month, not once a month; so the negative amortization that often accrues at the end of other option ARMs doesn't happen here. Other features? The COSI is paid off in 25 years (not 30), and the monthly payments are vastly reduced from that of conventional home and business loans.

Everyone I’ve talked to who has one is happy with it. Unfortunately, it hasn’t had nearly enough consumer exposure, and isn’t easy to find. The only lender I know who offers it in the South Jersey area is AmeriWealth Mortgage in Mt. Laurel.

The COSI is not a template cure-all for every situation, but it’s definitely worth the time to investigate—if you as the home-buyer or refinancer have done your goal-setting homework first.

For more information, visit www.ecameriwealth.com