Mortgage terms are typically based on both market conditions and the qualifications of the borrower (home buyer), or in other words, how the lender views the risk. Elements of risk that effect terms (such as pricing, i.e., interest rate and fees) include the amount of the requested loan relative to the value of the property (LTV) and the ability to make the payments (debt to income ratio). Lenders, particularly now, are becoming more conservative in their willingness to provide high LTV mortgages as well as allow for mortgage payments exceeding 30% of monthly income. Additionally, for loans exceeding 80% loan to value, there is generally the requirement that the home buyer/borrower also purchase private mortgage insurance (PMI), which requires a monthly premium paymentIn essence, terms are based on the lenders’ perceived risk, which is fundamentally attributed to the overall size of the loan.
Consequently, improved mortgage terms (e.g., lower interest rate) can be obtained if the LTV is lower and the expected mortgage payments represent a lower percentage of income; in other words, with a lower loan amount, a buyer can achieve better pricing for instance. But a lower loan amount suggests that more equity funds (higher down payment) are contributed to the purchase. If the buyer doesn’t have the funds, how can this be accomplished? PRIMARQ enables you as a home buyer to supplement your down payment funds by allowing you to raise equity funds from a pool of investors. This “equity sharing” arrangement involves new investor funds being co-invested with you supplementing your down payment, and as a result, reducing the amount of mortgage debt you borrow. While this investment entails sharing the ownership of the home, it allows for lower levels of debt, resulting in improved terms and more manageable payments.