http://www.financeequityloans.com/ 1% Mortgage Refinance loans, you’ve probably seen 100 different advertisements, but how is it possible? There is really only one big secret to 1% mortgages: 1% minimum payments are below the interest payable on the loan. Once we’ve addressed this feature, most of the other facets of 1% mortgages are relatively logical. 1% mortgages, which now come in dozens of varieties with start rates from below 1% (some even starting at 0% for a few months after refinance) up to 4% or more...

1. 1% Mortgage Refinance - How?
1% Mortgage Refinance loans, you’ve probably seen 100 different advertisements, but how
is it possible? There is really only one big secret to 1% mortgages: 1% minimum payments
are below the interest payable on the loan. Once we’ve addressed this feature, most of the
other facets of 1% mortgages are relatively logical. 1% mortgages, which now come in
dozens of varieties with start rates from below 1% (some even starting at 0% for a few
months after refinance) up to 4% or more, offer astonishingly low payments. Some of them
offer fixed rates for 30 or even 40 years, some of them are adjustable from the day you take
them out, all of these are basically “1% mortgages” and are extremely popular amongst
homeowners today. 1% mortgages and their offspring are being used for debt consolidation,
cash flow management, investments, and for tax purposes, and they are being used a lot.
A full 40% of home loans originated in 2005 and 2006 are estimated to be from the 1%
mortgage family, with multiple payment options. By its proponents, the success of the 1%
mortgage has been hailed as a new era of affordability and flexibility, of an extremely sharp
financial tool once available only to the very rich now available to every family in the
country. Its opponents tend to think that the 1% mortgage is a bit too sharp for the average
homeowner to handle, they fear “Average Joes” could conceivably cut themselves. Despite
their division, one thing is certain, the popularity of the 1% mortgage is driven by the
relentless pursuit of the American dream. There are more homeowners in the United States
today than in any other period in history, and many of those who own homes have only
been able to accomplish home ownership, which was once a lifelong achievement, in their
early 20’s and 30’s, largely because of the extended availability of these 1% mortgages to
normal borrowers.
How much less expensive is a 1% mortgage payment option versus the comparable 30 Year
Fixed traditional principal and interest payment?
For a $500,000.00 Mortgage:
1% Minimum Payment: $1200.00
Normal Loan Payment: $3000.00
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Cash Flow / Savings: $1800.00
It’s easy to see why the 1% mortgage refinance is so heavily marketed as a way to cut your
mortgage payment in half. In the above example, the 1% mortgage minimum payment
option is 60% less than a typical, traditional principal & interest loan payment. 1% mortgage
minimum payments are usually 50% lower than even the highly lauded Interest Only

2. payment mortgages, and most loans in the 1% mortgage family include the ability to pay
more than just 1% if need be.
So How Does it Work?
In fact, 1% mortgages are more than just the 1% start rate. They have a fully indexed rate as
well, which is the true amount of interest due each month. When making a 1% mortgage
minimum payment, the borrower is not paying all of the interest due, which is seen by some
as a good thing and some as a bad thing. Let’s examine some of the commonly perceived
benefits and caveats of 1% mortgages:
Commonly Perceived Benefits of the 1% Mortgage Family:
1. Extremely Low Monthly Minimum Payment: As we’ve seen in our example, the minimum
payment option is less than half of the typical traditional mortgage payment.
2. Flexibility to Control Your Own Money: Unlike a traditional mortgage, which requires a
payment to principal each month, 1% mortgages allow borrowers to take the power into
their own hands to make principal payments when they want to, e.g after a bonus or a
particularly good year.
3. Separate Cash Flow from Equity: While many personal finance pundits laud the benefits
of building home equity, the reality is that investing home equity yields a 0% return on
investment on a month to month basis. In the above example, paying the traditional
principal and interest payment forces the borrower to invest $1800 more each month in
their home, money which is locked up entirely in the equity of the home. Home Equity is
illiquid, meaning all this money locked in equity cannot be accessed unless the home is sold
or refinanced. The bank won’t cut a check each month for the borrower’s home equity in a
traditional loan. With a 1% mortgage minimum payment, that $1800 difference in payments
is money in the borrower’s pocket, to invest or spend at their discretion. By deferring
interest using a 1% mortgage, the borrower has full access to money that normally would be
locked up until they sold the property. That $1800 per month adds up to over $100,000.00
in cash over 5 years on a 1% mortgage, and it’s ava
4. Maximize Debt Consolidation: Using a 1% mortgage refinance to pay off all of your other
creditors, such as credit card companies and high interest rate lenders, means that you can
save even more money than with a 1% mortgage refinance alone. Since you aren’t throwing
high interest money at your creditors each month, the cash which you save by making the
1% mortgage payment actually goes into your pocket, your savings, your investments, or
wherever you need it most. That’s ultimate control. Let’s say that in our $500,000 1%
mortgage example above, we rolled in $30,000 of credit card and other high interest debt
that have a monthly minimum payment requirement of $1,000. By using a 1% mortgage
refinance to pay off those debts, total monthly savings using the earlier example would be

3. over $2800 per month, $1000 from the debt consolidation plus $1800 from the difference
between the traditional loan payment at 6% and the 1% mortgage minimum payment.
5. Turn Equity into a Tax Deduction: First, the 1% mortgage payment is 100% interest and
therefore should be 100% tax deductible in most cases. Secondly, One of the most attractive
benefits of 1% mortgages is the additional tax deduction available on deferred interest.
What this means is that borrowers can realize a tax deduction on interest they did not have
to lay out the cash for, and choose the time at which this deduction is realized, which can be
a huge savings upon liquidity or refinance. For real estate investors, this is a huge advantage
as it can often wash out the capital gains consequences of selling a property. Disclaimer: We
do not dispense tax advice, and you should consider consulting a CPA.
6. Easy Qualification: Normally, to qualify for low payment mortgages, borrowers are
required to have exceptional credit. However, 1% mortgage refinance loans are routinely
available to borrowers with credit scores as low as 620, and if they are borrowing less than
80% of the value of their home, scores can even be in the 500s provided there are no late
mortgage payments reported on their credit file. The borrower’s income can be stated, and
sometimes no income or employment documentation is required at all.
7. Enhanced Protection from Foreclosure: Because the minimum payment option is so low,
the cash savings each month so high, and the loan is so flexible, the 1% mortgage family
offers homeowners a low minimum payment option which they have a much higher
likelihood of paying should they suffer an interruption of income or become disabled.
8. Biweekly Payments: A popular way to maximize the benefits of the 1% mortgage
refinance is to elect to make biweekly payments (which are available on select 1%
mortgages). This optimizes the loan to coincide with most borrower’s payment cycles and
reduces any possible negative effects of deferring interest.
Commonly Perceived Caveats of the 1% Mortgage Family:
1. Artificially Low Payments: Because the minimum payments are so low compared to
traditional mortgages, many pundits fear that people who would normally not qualify for
home ownership can now own a home. The fear is that new or “low income” homeowners
could “get in over their heads” by buying more house than they can truly afford. Ultimately,
it is up to the borrower to decide how much they can afford.
2. Deferred Interest: Often referred to as negative amortization, this concern is commonly
cited by journalists as a “negative” because the loan balance may increase over time if the
minimum payment is always selected. However, this perspective does ignore the
advantages of dramatically increased cash flow in the borrower’s pocket each month and
the tax benefits of deferring interest. Of course, the borrower can choose for themselves
whether they want to spend their money paying interest to the bank or if they would rather
put the difference into their own pockets.

4. 3. Depreciation: If the value of the borrower’s home falls dramatically, and other factors
force the borrower to sell the home while the value is low, the borrower may wind up owing
more than the home is worth. This is a valid risk over short periods of time for all types of
mortgages, not just 1% mortgages. Even a traditional principal and interest mortgage does
not pay off enough principal over the first 5 years of its life to offset a dramatic short term
decline in home values. The risk of property values declining is a real risk of owning
property, period. However, history tells us that residential real estate appreciates
consistently over any given ten year period in the past 50 years.
4. Too Easy To Qualify: This may not seem to be a disadvantage to most borrowers looking
to purchase or refinance a home, but there are those who believe that borrowers should be
forced to document significantly more income and assets to qualify for these types of loans.
A lot of this sentiment is an outgrowth of antiquated conceptions of 1% mortgages as a
“Rich Man’s Mortgage”, which used to require significant net worth to obtain, and some of
it is attributable to equally antiquated “one size fits all” notions about mortgages. Your
perspective will likely depend on whether or not you are in a position to provide extensive
documentation of your income and assets in support of your loan application.
Many of the criticisms of 1% mortgages revolve around the adjustable rate variety of these
mortgages, which like all adjustable rate mortgages go up and down with the rest of the
market. However, in most 1% mortgages, the minimum payment stays fixed and can go up
or down only 7.5% per year. So if your payment in Year 1 is $1000.00 , in Year 2 it can go no
higher than $1075.00. Because the rate on the loan can change more or less than the
minimum payment, which is extremely low, the loan can result in the deferral of interest if
only the minimum payment is made. Many of the amortization issues which are seen by
critics of 1% Mortgages as their key detractor have been recently resolved by the
introduction of fixed rate minimum payment loans to the 1% mortgage family.
Fixed rate 1% mortgage variations, the latest additions to the 1% mortgage family, have
fixed interest rates from 3 to 30 years or more. The minimum payment option is generally
available for the first 5, 10, 15 or in some cases 20 years of the mortgage, at which point the
1% mortgage payment recasts or readjusts to the interest only payment or the full principal
& interest payment. During the fixed period, the loan payment and interest rates of fixed 1%
mortgages are utterly predictable and can be defined down to the penny. Many borrowers
who would prefer a fixed rate can benefit significantly from the 30 year fixed 1% mortgage,
which actually carries a minimum payment of 1.95% and a fixed rates in the 6% to 7% range
for 30 years.
While there are those in the journalism community who believe that 1% mortgages have
too much power for your average homeowner, ultimately the decision is in the
homeowner’s hands. Make a high payment to the bank each month, or put the money in
their pockets. And homeowners seem evenly divided, as refinances into loans from the 1%
mortgage category are projected to represent over 50% of all refinances in 2007.

5. Traditional mortgages are not a one size fits all solution, and neither are 1% mortgages, but
with low minimum payment options, excellent debt consolidation capabilities, significant
cash flow and tax advantages made possible by deferring interest, and flexibility to control
your finances or insulate yourself from interruptions in income or disability, 1% mortgages
continue to post significant growth across the country. Whether or not a 1% mortgage
refinance is right for you should be determined by performing a detailed analysis of your
personal financial situation with a home loan professional who has