New mortgage lets you skip up to two payments annually

Nation's Housing

October 13, 2002|By KENNETH HARNEY

WOULD YOU like to be able to skip a mortgage payment or two on your home now and then, with no penalty or negative impact on your credit files?

Would you like to hold onto your December and January mortgage payments and devote them instead to holiday gifts or credit card payoffs?

Or maybe take a vacation from your mortgage for a month or two during the summer, when you'd prefer to spend the money elsewhere?

Well, you just may get your wish.

Fannie Mae, the nation's largest source of home mortgage money, is quietly conducting pilot tests with lenders around the country on a new loan concept it calls "payment power."

In most respects, the new mortgage works like any standard 30-year fixed-rate home loan. But it comes with a built-in feature that you can use or simply hold in reserve: the contractual right to skip up to two monthly payments per year -- any time -- or up to 10 payments during the life of the loan.

The "skip" feature is available on mortgages for purchases or refinancing of single-family homes, two-unit homes or condominiums.

There is no late fee or other charge when you exercise your right to skip. The unpaid amount simply gets added onto the principal balance of the loan, and is amortized over the remaining term of the mortgage.

Here's a hypothetical example. Say you borrow $150,000 for 30 years at 7 percent. Your monthly payment, including escrowed taxes and insurance, comes to $1,297.99.

When you decide to skip, you contact the lender in advance. The lender will verify that your on-time payment history qualifies you to miss the next month's payment.

The $1,297.99 regular payment is added to your principal balance and capitalized over the remaining term of the mortgage -- in this case producing a revised, post-skip monthly payment of $1,306.65, an $8.66 increase.

Each time you skip, the same procedure occurs.

Pocket the cash

In effect, for a relatively small addition to your payment you get to keep cash in your pocket to spend on whatever you need.

Your lender's report to the three national credit bureaus will treat your skipped month as a regular on-time payment, rather than a default that dings your credit scores.

Who might be attracted to the right-to-skip feature?

According to a senior official of one of the lenders participating in Fannie Mae's nationwide pilot, the range of candidates is wide.

First-time buyers, refinancers with seasonal income flows, skilled laborers whose workloads decrease periodically and teachers appear to be especially interested in the experimental loan, says Mark Vinciguerra, executive vice president of Northern Ohio Investment Co. of Toledo, which markets the product as the "rainy day mortgage."

Although his company only recently began offering the new concept, Vinciguerra rates it as potentially "one of the hottest products" on his firm's loan menu.

In the "rainy day" version, purchasers or refinancers pay or share a one-time, upfront charge of about $600 on a $100,000 loan.

Fee can be split

That can be split between home sellers and buyers, or real estate agents and buyers, or simply added into the interest rate on the note.

Other lenders taking part in the national pilot, including Countrywide Home Loans, are expected to require a small upfront participation fee as well.

Countrywide, one of the largest lenders in the nation, expects to roll out its version of the "payment power" mortgage in December.

Though Vinciguerra assumed that homebuyers and owners with seasonally variable incomes would show the most interest in the skip option, his first closed loan was made to a woman in a different category: someone worried about potentially rocky economic times ahead.

The borrower sells vitamins to a major retailer that's now in bankruptcy proceedings, said Vinciguerra, "so she has an understandable concern that she might face a month or two of income breaks" next year.

Vijay Lala, Countrywide's senior vice president for product development, said his company plans to market to borrowers nervous about their abilities to keep their payments current in a worrisome economy, and to anyone whose monthly income rises and falls seasonally.

"We have done a lot of research" on consumers' underlying fears about taking on large mortgage debts, said Lala.

"We want to be able to reach out to borrowers who are afraid to make the leap."

Still experimental

Fannie Mae officials stress that although the "payment power" concept is offered by select lenders around the country, it is very much in the experimental mode.

Though participating lenders assume it will become a standard Fannie Mae product nationwide, Fannie Mae does not want to commit to a specific timetable.

How to get one of these pilot-test mortgages for yourself?

Watch for marketing campaigns in the months ahead. The loans may carry different brand names, but they will all do the same thing: Let you skip monthly payments whenever you really need to.

Kenneth R. Harney is a syndicated columnist. His e-mail address is Send letters care of The Washington Post Writers Group, 1150 15th St. N.W., Washington 20071.

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