There have been smaller institutions that have indeed launched similar types of products. The mortgage products we use primarily today were developed during the Great Depression Era, lengthening the repayment terms for borrowers in an effort to making housing more affordable. Since then, there has been no substantial lobby for change and unfortunately, conventional products haven’t kept up with consumer demands and behavioral changes. In time, we believe mainstream lending institutions will eventually evolve too.
Although the vast majority of mortgages purchased in the U.S. are for 30-year terms, most are paid off every 5-7 years, historically, either through a refinance or by the sale of the property. Lenders only earn income on those loans for a short period of time. But the Life Changer Loan is different. It provides a variety of benefits not offered with conventional financing and therefore, less incentive to be replaced. The result is reduced risk for a lender, the potential to earn interest income for a greater period of time, and the opportunity to develop “stickier” relationships with borrowers.
Yes. Life Changer Loan notes are sold to end investor or portfolio lenders.
The company has partnered with regional deposit institutions, including community banks and credit unions, to provide servicing support for the Life Changer Loan. These institutions issue the secure access features, an online account, as well as all of the standard fraud prevention and protection services banking clients are accustomed to.
Borrowers can draw funds from the line of credit for a total of 30 years as long as their principal loan balance is below their credit limit.
No, there is no balloon payment due with the Life Changer Loan, nor is the loan balance ever forward amortized.
Every time funds are deposited into the Life Changer Loan a principal payment is made, meaning, the loan balance reduces by the same amount the day of the deposit. Effectively, deposited funds help borrowers save loan interest at the same rate as the Life Changer Loan. As an example, if the interest rate is 4% and the borrower deposits their $5,000 paycheck into their Life Changer Loan with a principal balance of $200,000, the balance would lower to $195,000. Those dollars are now saving the borrower loan interest at a rate of 4% by lowering the balance versus earning near 0% in their regular checking account.
At the end of the month, the daily interest is calculated and added to the loan balance.
Each night at midnight, the principal loan balance is multiplied by the fully indexed interest rate and then divided by the days in the year (365). That provides a daily interest fee. Monthly interest payments are calculated by totaling each day’s interest once the month has ended.
Yes, that’s the point! Idle dollars not yet needed for other expenses are better utilized in the Life Changer Loan as they help lower the cost of monthly interest, yet those funds remain accessible to the borrower.
This is really a question of math. Any funds not currently earning at a rate above the rate of their Life Changer Loan should be put into the loan for the largest interest savings advantage.
Because it works like a checking account, cashflow positive borrowers save in four ways. First, regular deposits, such as income and short-term savings, drives down Life Changer Loan principal dollar per-dollar.
Second, borrowers don’t spend all of their money on living expenses on the same day. Instead, much of their deposited cash remains idle waiting to be spent for days, sometimes weeks. While cash waits to be spent in the Life Changer, it keeps their loan balance lower, for longer. Interest is calculated nightly on the lower principal balance which results in less daily interest.
Third, the money normally budgeted for a traditional monthly mortgage payment no longer needs to be spent. Those dollars are automatically used to keep the Life Changer Loan balance even lower.
And finally, extra cash that simply wasn’t needed as part of the borrower’s regular budget also remains in the account, helping to keep the balance lower for even longer. The lower principal balance, along with the interest saved, rolls over into each new month as a lower starting loan balance, which has a compounding effect on interest savings.
Interest cost is much more important than interest rate, and the longer a borrower is in debt the more interest cost they accumulate. Put simply, the longer a borrower remains in debt, the more costly that debt becomes, regardless of a low interest rate. A great example of this is to compare a $400,000 15-year fixed loan at 7% interest and a $400,000 30-year fixed loan at 4% interest – the 7% interest loan is less expensive by about $40,000 not to mention pay-off sooner.
Borrowers with great repayment history, positive monthly cash flow, and a low debt-to-income ratio make great candidates for the Life Changer Loan. To measure a borrower’s ability to repay the loan, guidelines take a conservative approach and require the payment used to qualify is based on an interest rate 2% over the fully indexed rate (1-month LIBOR + Margin + 2%), amortized over a 30 year period by the loan amount to test short and long-term financial benefit. The real test is done by running the Life Changer Loan Interactive Simulator. Users are prompted to enter incoming net deposits, outgoing debt payments, and regular expenses and in a matter of moments, can view and compare their potential savings. If the Life Changer Loan isn’t suitable, the Interactive Simulator will make that clear.
Although it comes loaded with features that provide unmatched flexibility, such as access to home equity dollars, the primary benefit the Life Changer Loan provides borrowers is the opportunity to save thousands of dollars in mortgage interest. Many consumers simply don’t recognize how much interest comes with a conventional mortgage, and more importantly, how that cost can impede other financial goals. The Life Changer Loan was developed to help borrowers reduce their mortgage interest expense, by using money they already have, through an instrument they already know how to use, to save interest. Saving interest means having more money left over for the more important things in life.
While the mortgage-interest deduction outlined by IRS publication 936 offers borrowers a benefit, it may not be a good reason to pay more interest than is necessary. The mortgage-interest deduction eliminates only a percentage of a borrower s tax liability, equal to about 30 cents for each dollar spent on mortgage interest. Therefore, it generally is not logical to keep a mortgage or pay higher interest only because of the tax deductibility benefit. If it was, wouldn’t borrowers seek out the highest interest rate versus the lowest interest rate in order to maximize their deductions? But, every borrower is different. As always, they should consult their CPA or tax advisor for clarity.
Yes, deposits are FDIC insured while in the checking account portion of the loan. At midnight those funds are transferred to the line of credit in the form of a lower principal balance and hence, lower interest cost.
No. Although everyone should know about the Life Changer Home Loan product, it is not a product that will benefit every household in America. That’s the point. Conventional products have their place and help millions of homeowners afford buying a home, but those products may also set other families back who have much more control of their budget. Those borrowers with expenses that are nearly equal to their income are less suitable for Life Changer Home Loan financing and are potential candidates for other mortgage products.
No, in fact, America is behind much of the world when it comes to innovating home financing. Products similar to the Life Changer Home Loan, commonly referred to as Money-Merge Accounts and Offset Mortgages, have been offered throughout Western Europe, Canada, New Zealand, and Australia for many years and even decades already. The development of these products is a result of those lenders realizing the importance of building deeper relationships with their customers by allowing them more control and flexibility with their borrowings. The Life Changer Home Loan represents a change, long overdue, to the way Americans manage their mortgage debt and maintain a deeper relationship with their lender or bank.
If you withdraw funds and your balance reaches your credit limit, you will not have any more available credit and you will not be able to withdraw additional funds until you make a deposit. Checks written will not clear after you reach your credit limit and may be returned by the company’s banking partner due to insufficient funds, just like a regular checking account.
The great news is, that’s exactly what the Life Changer Loan was designed to help you do; pay off early. If that is accomplished before the 30th year, you will retain access to home equity dollars without refinancing for the balance of the 30 year-term, through the line of credit. There is no early pay-off fee or pre-payment penalty.
Yes. The annual fee is $60 dollars starting in the second year and is charged directly by our banking partner servicing the loan. This fee covers costs incurred by the bank for transactional banking activity throughout the year.
It’s truly no different than obtaining any other residential home loan, EXCEPT, that it is designed to reduce the amount of interest you pay throughout the life of the loan. All normal title fees, and appraisal fees would still apply.