I. Explanation of the COSI Mortgage

II. Cost of Savings Index

III. Flexible Payment Options

IV. Frequently Asked Questions

V. Program Facts and Highlights

I. Explanation of the COSI Mortgage

This unique home loan is based on the most stable lending index in America, the COSI (cost of savings index, see graph). The index is the only variable aspect of this adjustable rate mortgage. This is why the index so important. The COSI index has remained low and stable because, it is not based on the fluctuating economy. The COSI index represents the average of interest rates certain banks pay to common customers on checking, savings and CD accounts.

One of the largest Savings and Loans in the 11th District (CA, AZ, NV) offers a mortgage program tied to its own "cost of savings." Simply put, this Lender borrows money from consumers in the form of deposits, i.e. C/D's, checking and savings accounts, and then lends the money out as home mortgages. Then they place a fixed "Margin" on top of their own Index.

The interest rates in effect on these deposits are the basis for the COSI. The COSI is not based on actual interest paid on deposit accounts, but rather on a weighted annualized rate of all interest rates in effect on deposit accounts as of the last day of each month.

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II. Cost of Savings Index

Historically, the COSI has moved up and down much less rapidly than indexes based on the PRIME Rate, the Federal Reserve discount rate, or Treasury bill rates. This is because COSI is composed primarily of fixed-rate deposits of varying maturities (i.e. C/D's.) Since rates on these deposits are not affected by changes in market interest rates until the deposits mature, the average interest rate on deposits in a particular month reflects, to a significant degree, interest rates that were in effect in previous months. Thus, when market interest rates for deposits move up or down, COSI will lag and generally not move as rapidly or to the same extent. The COSI and the COFI or Cost Of Funds Index, are the slowest moving and safest indexes in the world for mortgage lending.

After the massive savings & loan bailout in the late 1980's, the banks have changed the way they earn profits. Banks now earn bigger profits from bank fees rather than the lending they do with depositor assets. Banks are avoiding many lending outlets due to risk. It is unlikely that we will ever see CD interest rates as high as they were in the 1980s. Ultimately, this will protect and keep the Cost of Savings Index stable and low.

Consumers use checking and savings account for only convenient and necessary reasons. Over 40% of the index average are made of this type of account, and they are the most costly for the bank to maintain. Banks will always pay less for convenient and necessary accounts (The index average varies with each bank offering the COSI. This is a general assessment).

Certificates of Deposit Accounts (CD'S) make up the other 60% of the COSI index (The index average varies with each bank offering the COSI. This is a general assessment). Although banks generally offer their highest rates on CD's. They also serve as an index stabilizer. During an economic recovery CD's rates will improve slightly. However billions of dollars of CD's were locked in during a sluggish economy when the stock market is most volatile. With a strong economy money market and stock funds become a more attractive investment.

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III. Flexible Payment Options

Each month, an easy-to-read loan statement lets you choose the payment amount that best suits your financial situation: pay the Minimum amount to free up funds for other uses, or make larger payments for faster equity build-up. It’s ideal if your income fluctuates or steadily increases over the years. Attractive loan features include:

YOUR MONTHLY PAYMENT OPTIONS:
Rates example based on $200,000

Minimum payment: Payment $734.00

Choose this option to let you keep more cash now and keep monthly payments manageable.

Generally, this payment changes annually and is calculated using the initial interest rate "Start Rate" for the first 12 months. After that, the minimum payment is usually recalculated annually based on the outstanding principal balance, remaining loan term and prevailing interest rate. A 7.5% adjustment cap (of the previous payment, NOT interest rate) limits how much this payment can increase or decrease each year. Interest rate adjustment feature and payment change cap, and certain payment options, can result in deferred interest. For example, if your previous start rate payment was $1,000 per month, the highest it can increase would be $1,075 (per year).

A Minimum payment that allows for the lowest mortgage payments of any other loan offered in America. Payments adjust on an annual basis. You can pay the Minimum amount, in which case some of your interest would be deferred. Deferred interest, also known as negative amortization, occurs when the monthly payment is not sufficient to cover the Interest and sometimes Principal accrued during the month prior. The unpaid Interest (and Principal) is added to the balance of the loan, rather than increasing the current monthly payment. But, you can always make the full P.I. pmt. or even pay more to avoid negative amortization or to accelerate your pay off.

Interest-only payment: Payment $811.67
Keep payments manageable while paying all your interest.

At those times when the Minimum Payment is not enough to pay the monthly interest due, you can avoid deferred interest with this option. You pay the minimum monthly payment and all additional interest accrued during the month. So you avoid deferred interest, and your payments are still manageable. Note: This option does not result in principal reduction.

Fully amortized payment: Payment $1057.80
Reduce your principal and pay off your loan on schedule.

It's calculated each month based on the prior month's interest rate, loan balance and remaining loan term. When you choose this option, you reduce your principal and pay off your loan on schedule, just like any standard loan.

15-year payment: $1568.07
Own your home twice as fast.

If you want to build equity faster, pay off your loan quicker and save on interest, this is the option for you. It's calculated to amortize your loan based on a 15-year term from the first payment due date.

Bi-Monthly Option: Pay off your 30 Year loan in under 24 years keeping monthly payment the same.
Pay your loan off faster

Add this option to let us automatically deduct 1/2 your mortgage payment every two weeks from your checking account. This is a great way to manage your mortgage, and save thousands more by paying your loan off years faster.

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IV. Frequently Asked Questions

How is the COSI Calculated?

The monthly index is a ratio of monthly interest cost to total funds, expressed as a percentage.

Annualized Interest, the numerator, is calculated by multiplying the deposit balances at the end of each month by the weighted average interest rate of each account type that was effective on the last day of the month.

Total Deposits, the denominator, is the total balance of deposits on the last day of the month.

The quotient resulting from dividing the annualized interest by deposits, multiplied by 100 and expressed as a percentage, is the Weighted Average Cost Of Savings (COSI).

When is the Index Announced?

The COSI is computed on the last day of each month calendar month and is announced on or near the last business day prior to the fifteenth day of the following calendar month. For example, when the February COSI is announced on or near the last business day prior to the fifteenth of March. It is in effect until the announcement of the March COSI in April.

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V. Program Facts and Highlights

* The most stable adjustable rate index in America. See Graph.

* Less points than most conventional low rate mortgages.

* Most COSI loans have starting interest rates below 2.00% and most will take up to 5 years to increase to a stable fully indexed rate.

* The COSI mortgage offers the best bi-weekly payment feature in the business. This bi-weekly feature will automatically pay off a 30-year loan in just 23 years, saving tens of thousands of dollars, as an end result. One half of the payment will be directly withdrawn from a pre-determined bank account every 14 days.

* There is no price increase for Jumbo mortgages to $600,000! Only slight program modifications for loans up to $900,000

* The COSI loan does not require escrow accounts for taxes and insurance. This will result in a lower overall cash requirement at closing. Many tax municipalities also will provide you discounts for prompt payment on property taxes. Lenders will not usually pay your taxes by any offered discount date.

* The COSI ARM has a low annual payment cap of 7.5%, lower than any T-Bill ARM. This is about the same as a .875% annual interest rate cap.

* 90% limited doc loans are offered by combining 2 mortgages (70/20 loan).

* The COSI mortgage is also assumable. When selling a house every advantage helps. A buyer can take over your COSI mortgage were you left off.

* The COSI loan can be a no documentation mortgage. With a 20% down payment you will not have to document your income or employment. If a 25% down payment is made the lender requires no documentation of income; employment or assets needed to buy the new house. The COSI loan is perfect for the small or large business owner who does not desire to provide the mountain of paperwork needed to complete a standard mortgage

Consider a COSI If:

You want to minimize your house payment-smallest you can get anywhere
You want to minimize your house payment to pay off other debt.
You want to minimize your house payment to invest the difference elsewhere
You want to control the amount of tax-deductible interest you pay each month.
You want to maximize your buying power.
Your income tends to fluctuate or you're confident that your income will rise over the years

If you still have questions, or would like more information, please call and speak with one of our mortgage professionals.

Mrates 1-(877) Mrates-1 or

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