NerdWallet wrote up an article about Androscoggin Bank's Wealth Builder Home Loan -- get their take on the topic below.
What to Know About the Wealth Builder Home Loan
(Jan. 27, 2016 – Lewiston, Maine)
When you get a home mortgage, you usually have two choices for the length: 15-year or 30-year loans. Although the shorter loan lets you pay off your debt and build wealth in your home, it usually comes with higher payments. There's a type of 15-year mortgage that reduces those costs, though.
Lenders such as Androscoggin Savings Bank provide wealth builder home loans, a unique discounted 15-year mortgage with a new type of payment structure that aims to make homeownership more accessible.
Here's an overview of its key features:
Reduced two-step rate
The mortgage takes on the structure of two different loans, with one fixed rate for the first seven years and a higher fixed rate for the last eight. The first rate tends to be much lower than the average national rate for a 15-year or 30-year mortgage at a bank or credit union.
No down payment required
Traditionally, mortgage experts advise paying 20% of a home's price upfront so you can avoid private mortgage insurance. PMI protects the lender in case you default on the loan, but it can increase your monthly payments by hundreds of dollars. But the Androscoggin 15 year Wealth Builder Home Loan doesn't require a down payment or PMI. So you can finance 100% of your home without suffering the usual consequences.
Ability to finance points
Mortgage points are fees that you pay to lower a loan;s interest rate. Traditional home loans require that you pay the fee at closing, but the wealth builder loan goes a step further by letting you finance points. So you could end up borrowing 103% of the home value, for example.
Paying off principal faster
In a standard payment cycle, you pay off mostly interest and very little principal in the early years of the mortgage, but this home loan ensures a faster rate of building equity, or the home value minus debts. About 77% of monthly payments in the first three years can go to paying off principal, according to an American Enterprise Institute presentation by Joseph Ferris, the vice president and manager of mortgage lending at Androscoggin Bank.
More inclusive than other loans
Federal Housing Administration, or FHA, loans can require down payments of at least 3.5%, and to qualify you need to be a first-time buyer. Veteran Affairs, or VA, loans are another type of mortgage with low, or even no, down payments required, but you must have served in the military to receive one. In contrast, the Androscoggin Bank Wealth Builder Home Loan offers better terms, and you don't have to be a first-time buyer or veteran to qualify.
As attractive as this loan may be, it's still subject to credit approval and can have geographical and housing size restrictions. For example, this loan is only available for properties in Maine.
Being able to build equity in your home quickly without heavy payments can give you the best features of a 15-year mortgage. Plus, a wealth builder mortgage can let you save on upfront and other costs compared to other loans. That combination may be just enough to put your dream home within reach.
Spencer Tierney, NerdWallet
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