10-25-2010 - Laserfiche WebLink

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MEMORANDUM TO: Mounds View Economic Development Authority Cc: Heidi Steinmetz FROM: Suzanne Snyder Greater Metropolitan Housing Corporation RE: Loan Amortization I have attached two sample amortization schedules for the Mounds View Home Improvement Loan Program. The amortization schedules are: Attachment A: Fully amortized loan at 3% interest for a 15 year term on a $15,000 loan. Attachment B: Fully amortized loan at 0% interest for a 15 year term on a $15,000 loan. Although we discussed an interest-only loan payment, I discussed this option with GMHC’s underwriting specialist and she and I agreed that an interest-only loan on a home improvement loan is not advantageous for the borrower or the city. The interest- only loans that we currently administer are for down-payment assistance, not home improvement loans, and there is a difference. Unlike a down payment loan, which is not paid off until the first mortgage is paid, a home improvement loan generally carries a term of one-year for every $1,000. A home repair loan of $15,000 will have a loan term of 15 years. If the borrower is making interest-only payments, then at the end of the 15 years the principle will become due and the borrower will have a balloon payment of $15,000. In most cases the homeowner will not have $15,000 cash available to repay the loan and they will most likely still have a first mortgage loan. Therefore they will have to qualify for additional financing to make the balloon payment. This can present a hardship for the borrower and may create more likelihood of defaults on the loan, which certainly isn’t good for the city. If the city wishes to have a low-interest loan I recommend the loan be fully amortized, i.e., fixed monthly principle and interest payments for the term of the loan. As shown in Attachment A.