AAA Blog

I have seen a lot of things in my time.  Interest only Mortgages, 50 year mortgages, even 125% Mortgages.  I thought I had seen it all, and along comes the 1 year payment free mortgage.  How is this possible?  I asked myself just this question as I listened to the radio with great interest.  After all I have been arranging mortgages for 10 years and have never heard of such a mortgage.  I asked every bank and lending institution that I could think of and each one shrugged their shoulders and looked at me with a blank stare. 

I would think a product with this kind of draw would be available on each and every street corner.  I decided to investigate.  Believe it or not it took a good deal of investigation to glean even a small amount of information.

After many calls and countless articles I have determined that the old adage that "if it is too good to be true..." is safely intact.  Yes, the wonderful payment free loan is just another gimmick.  A slight of hand worthy of a magician.  Here's how it works:

Your loan officer will inform you that you qualify for a payment free mortgage for 3 months, 6 months, 1 year.  Your interest rate is the same either way and your loan will be paid off in 30 years as agreed as is the case with any  30 year fixed mortgage.  Wow! Sounds great! (right?)  Wrong!  Well it is too much to assume that the bank is kind enough to forego payments for a year.  The truth is they don't have to.  Your loan officer has set up an escrow account at your expense using your equity to make payments on your behalf for the specified time.  Yes, someone else will use your money to make payments.  Usually at a substantial management fee.

The payment free loan is nothing more than a preset accounting service.  Since you are taking money out of your equity to make the payments you are subject to fees associated with cash-out loans. 

I have to admit it got my interest.  I am sure it makes the phone ring for the companies advertising such a product.  I just can't help wondering what loan officer in good conscience could sell this bait and switch.  Perhaps the same ones that worked to put the mortgage market in the mess its in today.  Don't Be Fooled!  If you want an honest opinion or voice your displeasure.  Contact Jason at (816) 272-5550.