The way mortgages are done in America is about to be turned upside down.
Nestled down in Federal Way are the offices of Pacific Guarantee Mortgage, a fast growing company that has dozens of representatives working in and around the Seattle area. Owned by husband and wife team Sara and Jeffrey Mills, PGM recently launched the American version of an Australian-style mortgage that utilizes a homeowner's checking account to drop typical mortgage life spans in half.
"As much as it sounds like a cliché, there are no disadvantages, but I have to preface that and say this product is not for everyone," asserted Mills, who noted folks that have good credit, are responsible financially, and can manage their funds well typify their customer base.
"There's not an income floor [with this mortgage]. It really depends on how good a person's cash flow is and how long you let your funds sit."
The simple concept is based around the reality that most people move their income through their checking accounts. Their paychecks are deposited and checks and debits are made against the account to pay typical household expenses such as the car loan, the grocery bill, and most likely more lattes than one would care to admit to throughout the month.
While your paycheck is sitting in your account, it's earning anywhere between no interest up to around 2 percent interest. No windfall, for you. As your money sits, your bank turns it into mortgage loans for other homeowners at rates between 5 and 7 percent. So the short and skinny is that your bank gives you up to 2 percent for the money you let them hold, but they turn around, give it to someone else as a mortgage for up to 7 percent interest, and then pocket the remaining 5 percent interest when the mortgage holder starts writing out their monthly payments to the bank.
However, under the PGM's new mortgage, called the Home Ownership Accelerator, folks deposit their paychecks into their mortgage accounts. According to Mills, these accounts act like a typical savings account, but the 1 to 2 percent interest you earn on your deposits goes toward paying off your mortgage principal.
Gone are the days when you have to pay a home loan back with a 5 to 7 percent interest rate tacked onto it. Additionally, the Home Ownership Accelerator accounts act like a traditional checking account with free, unlimited checks and Visa-ensconced ATM cards.
The American style of checking account based mortgaging was devised by Chris George of San Ramon, Calif., who first discovered the style of mortgaging in Australia back in 2002. The Aussies had been doing it for years, and even tried to sell American banks on the idea back in the 1990s, according to Mills.
However, Mills noted the American banks were not willing to let go of a mortgage system that garnered them a profit margin hitting between 4 and 6 percent on the money they used for home loans. Frustrated with the American's stubbornness, Mills said the Aussies gave up, and it wasn't until George, along with his partner Doug Nesbit, took the idea, refined it for the American market, and found a willing financial backer in the General Motors Acceptance Corp.
"We have a presence in every [Seattle-area] market," said Mills, who noted the Home Ownership Accelerator mortgage began taking applications on June 8 and had its first client okayed last week. "We'll go to coffee, we'll go to people's homes, whatever is comfortable for them. It's really customer service oriented. Most people are busy these days and don't have time to go to anybody's office anywhere."
To learn more about Australian-style checking account based mortgages, visit PGM's website, www.mymortgageteam.net.
Erik Hansen may be reached at editor@sdistrictjournal.com.
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