Citadel Servicing recently announced a new 40-year program, available to both its non-prime and its Outside Dodd-Frank products.
The 40-year term breaks down as being an interest-only loan for the first 10 years, and the borrower can either select to go to a 30-year fixed or a 30-year ARM after the initial 10-year period. The borrower is qualified based on the 30-year payment if they go to the fixed; the borrower is qualified based on the fully-adjusted payment if they chose the ARM.
“It’s been a while since we’ve seen programs like this, and we wanted to make sure that we crafted up a program that made sense for the borrower, that gave them maximum benefit,” said Will Fisher, SVP of sales and marketing at Citadel.
The non-prime product would primarily be used for the owner-occupied borrower, and the Outside Dodd-Frank product was created with the investment borrower in mind.
There are two ideal owner-occupied borrowers, Fisher said.
The first would be a short-term purchaser without a lot of security in where they’re living. This person typically spends between three and five years in one location before being forced to relocate again.
“Instead of giving $2,000, maybe $3,000 a month to rent, they’d rather put it through a mortgage,” Fisher said. “It’s interest-only, so they get all the benefits of the tax write-off against your income, and maybe some slight appreciation in the property, and they’re happy.”
The other ideal type of owner-occupied borrower is one whose income is solely or primarily based on commission. They might have a base salary but experiences a lot of spikes or seasonality with their income.
“One month they might crush [it] and make 100 grand, 50 grand, 20 grand, the next month they might make two [grand]. And so this keeps the payment nice and easy and then when they have the opportunity to, they can put more down on that mortgage and build into their equity position.”
Investors, on the other hand, want all of the benefits they can get from an investment property. Being unconcerned with paying off the property outright and wanting as much cash flow as possible, the interest-only payments allows them to achieve that. Any cash that’s not being put towards the principal can instead be put towards more lucrative investments, something with a higher rate of return.
Fisher said the response from mortgage brokers has been “fantastic.
“They’ve actually asked us if we could open up to a couple of our other products, and maybe in due time, we’ll see. But it’s been really good, so we’re really looking forward to the end of the month to see how the numbers pan out, and we’re excited about it.”