Data processing: financial – business practice – management – or co – Automated electrical financial or business practice or... – Finance
Reexamination Certificate
1998-11-17
2001-07-31
Millin, V. (Department: 2164)
Data processing: financial, business practice, management, or co
Automated electrical financial or business practice or...
Finance
Reexamination Certificate
active
06269347
ABSTRACT:
FIELD OF THE INVENTION
The present invention relates to a new concept in home mortgages or other investment type mortgages that include a plan which provides a substantial reduction of the total amount of interest which is paid over the life of the loan, for any given interest rate. The method of the invention also provides for a rapid buildup of equity as compared to the limited reduction of principal created by conventional mortgage loans. The concept disclosed provides a means in which a borrower may reduce loan principal due to the lender, at a faster rate, under any given loan interest rate, by applying regular payments to principal first, thereby substantially reducing the amount of interest actually paid during the life of the loan.
BACKGROUND OF THE INVENTION
The economics and life styles of America are built on the basic home mortgage, whether it be 15 year, 30 year or some other term of repayment. Normally, and most conventionally, home mortgages and other such loans are amortized using a formula which provides that payments over the term of the loan are allocated to interest first. In the later years of repayment, a significant portion of the monthly loan payment, serves to reduce the principal due on the loan.
Frequently, individuals or companies borrowing money on a conventional loan basis resell or refinance the property which was acquired by the use of the loan proceeds. Homeowners sometimes resell the house they have purchased within five or ten years after the date they acquired the property. At such a time, loan proceeds from a mortgage used to acquire a residential property must be repaid from the funds created at settlement of the property. Naturally, in a conventional mortgage, most of the monthly payments provided to the financial institution providing the funding are applied toward repayment of interest, leaving very little to service the principal to reduce same. Therefore, for many homeowners or business owners selling their property or business, there is very little equity available from the sale of the property during the early years of the life of the loan.
A traditional mortgage allows affordable monthly payments over a long term, and enables the mortgagor to build meaningful equity only after many years of payments have been made. Combined with rising real estate values and normal (or sometimes abnormal) inflation, the mortgagor was able to create a modicum of wealth through the accumulation of appreciation of the value of the property. However, with inflation low and under control for quite some time, and with stability of housing prices which reflects such low inflation, it is more difficult for homeowners or business owners to create equity in the property they're paying off, especially during the early years of a conventionally amortized loan.
For a long time, the success of America was based on population growth leading to housing booms, (i.e., more population growth), in turn leading to more housing booms—all of which leads to more mortgages being issued by financial institutions. Though interrupted by wars, the cycles of business, and the insecurity of the stock-market and other investments, housing growth remains as one of the most accurate measures of America's economic pulse. There have been numerous kinds of mortgages used to facilitate the financing of real property, but the most common provisions require the borrower to pay equal periodic installments, which include an interest payment and a principal payment, over a period of time until the mortgage was paid. The premise of the agreement between lender and borrower is based on a specific interest rate for a specific number of payments over a specific term. This has been the backbone of the home mortgage for some time, although when fluctuations in the interest rates that banks offered caused new methods of interest calculations and payments to be invented, such new methods give rise to new mortgage “products” . Banks have instituted a variety of new mortgage “products” such as the adjustable rate mortgage (“ARM”) which permits the rate, and therefore the borrower's payments, to fluctuate, usually along with some other market instrument, to maintain the bank's profitability. However, the conventional fixed-rate mortgage has remained the most popular loan. There is normally very little equity in the homeowners property in the first five or ten years of a 30 year amortized loan.
The present invention provides an alternate plan in which monthly payments are made such as in an otherwise conventional mortgage, in a simple, more reliable, mortgagor-attractive mortgage plan. This system gives the bank a new product to offer their investors which can provide for rapid return of principal in which, in certain scenarios, may be of interest to such a mortgage investor. At the same time, and it provides a very attractive means to market mortgage money to borrowers.
There is a certain category of investor, perhaps foreign investors and other such special categories, in which the investor requires a return of principal from an accounting point of view and a deferment of interest received. By using the method described in the present invention, such investors can defer receipt of interest payments until a considerable time in the future, since the payments being provided in the early years of the loan are applied to principal only, with interest being accrued and deferred. Such investors are simply recovering, therefore, principal that they have invested and do not receive income by way of interest until later in the loan payments schedule, or upon payment of the entire loan amount. At such time, such an investor would receive any remaining principal yet unpaid, along with accumulated interest which has accrued in accordance with the present invention. There may be other categories of investors which for, one reason or another, wish to refrain from booking interest as income on investment loans until a later period in time. By using the scheme described and illustrated, such investors would not be receiving interest payments until considerably into the life of the loan.
SUMMARY OF THE INVENTION
The present invention relates to a method for operating and implementing a mortgage plan which comprises, determining an amount of mortgage for which an applicant would qualify and a priority schedule of repayment of principal based on otherwise conventional lending practices, creating an accelerated payment schedule for the principal amount of such mortgage so that the principal is repaid within a shorter time than would otherwise be the case during a given term of the mortgage, applying the entire amount of each payment to principal first, while accumulating interest due. Thus, the total actual accumulated interest paid on the principal of the loan is greatly reduced for a given interest rate. Also, the amount of equity that the borrower has in the property or business, being financed, increases much faster than with what normally would be the case using a conventional amortized schedule of repayments over a given loan or mortgage term.
Preferably, the accelerated equity payment schedule is created by providing a monthly mortgage payment plan, and the equity buildup in the loan is demonstrated by way of an amortized schedule illustrating the principal pay-down by application of payments to such principal first. In this system and method, all paperwork in connection with the mortgage plan is generated before the mortgage is implemented, and computer means are utilized to operate and implement the mortgage plan by providing a breakdown of the payment allocation using well-known arithmetic formulas.
The system of the invention includes the respective means to carry out the previously described method steps. Preferably the means for creating an accelerated principal payment schedule is a monthly mortgage payment plan, and the accelerated equity accumulation and reduced interest payment can be illustrated as shown in examples disclosed with the present invention.
The accelerated principal pa
Akers Geoffrey
Famiglio Robert B.
Famiglio & Associates
Millin V.
LandOfFree
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