Clayton's BETSI program again - Hey Mr Murray

[Meg]

This is a follow-up to the earlier post about Vanderbuilt Mortgage's program known as BETSI (Build Equity Thru Saving Interest"

Mr. Murray, you had commented that this was a negative amortization program and suggested I go to the mortgage professor website which I did - however, I have not heard back from the mortgage professor about this program.

I went back up to the Clayton dealer though to get more details about this program. The salesman stated that it is definitely NOT a negative amortization program. Here is schedule of the first 13 years of a 19 year mortgage.

Year -- BETSI Payment 30 Year Loan Balance BETSI Balance
1 468 90,000 90,000
2 484 88,943 89,798
3 501 87,819 89,380
4 517 86,622 88,734
5 534 85,349 87,843
6 550 83,994 86,693
7 566 82,551 85,267
8 583 81,016 83,547
9 599 79,383 81,515
10 615 77,644 79,149
11 632 75,794 76,430
12 648 73,826 73,333

Will continue on next post.

[Meg]

So, the loan balance gets lower on the the 30-year mortgage until the 13th year when the BETSI catches up - at that point the 30-year loan balance is 71,730 while the BETSI balance is 69,835.

I know what you said about people moving in 5 or 6 years but even if that were the case, I'd still owe less than the original amount. I don't understand what you said about adding the interest back to the original amount.

According to those figures, the principal is going down every year, although it DOES decrease more on the 30-year schedule for the first 12 years.

I like the lower monthly payment with the very small increase every year which I feel that I could manage. I also LOVE the idea of paying the house off in 19 years instead of 30 - big difference!

I told the Clayton salesman that there HAD to be a catch and I asked "What's in it for Clayton?" He said that Clayton lessened their liability sooner and sold more homes with this program. Sounds reasonable to me, but do you still feel that this is not a good thing?

[rmurray]

Something is not right with the description...You described a varible payment...fixed rate mortgage..Meaning the payment changes over time...but the rate is 6.5% fixed for the full term of the loan...If so..my statement "The interest at 6.5% on 90K is $ 585/mo" is correct and the first year would have negative amortoization..meaning the loan is earning more interest than your payments are..

Now the sales person is describing a varible rate loan..with fixed increases in the rate..(often called a step rate loan...where the rate changes but the changes are fully disclosed and predetermined and not tied to the interest market place like a varible rate).I do not have my calculator with me at home and will do the math later at the office and post again..Showing you what the rate would have to be each year to achieve the results listed...If so..these rates would have to be fully disclosed in the documents...Where did the saleperson get the payoff figures...This would also be disclosed in the contract...If you wish..get a copy and I will give you a fax number to fax it to so I could read the actual terms listed in the contract...That is the only thing that counts...

It is possible that they are paying the difference from the proceeds of the contract..much like a rebate in the auto business...(you know..0% interest OR a rebate of X dollars)..If so that means you could buy this home cash...with another lender at a much lower price...I would guess this would also have to be fully disclosed...but..you never know with federal disclosures....One thing for sure...Clayton does not sell and lose money...If the rate is actually 6.5%...YOU are paying it somewhere...

[Meg]

I WILL try to get a copy of the contract and fax it to you (at what fax number?) so you can look it over.

I realize that I could get a fixed rate loan at 5.75% (I think) right now, which would put my payments at $525.60 plus property taxes and home owners insurance - so let's say, roughly $600 a month, but - again - that would be for 30 years!

Another thing - the salesman was saying that the payment on the BETSI program INCLUDES home-owners insurance (through Clayton) for 5 years. I know what you said a few weeks ago about the stupidity of financing five years worth of insurance but if my monthly payment is that much lower than a conventional loan, and if I can get the house paid off 11 years earlier, should I be concerned? The salesman also said that Clayton knocks a half of a percent off the loan rate for those of us who buy the insurance from them.

Yes, I smell a rat, but there were the figures in black and white. Clayton IS a reputable company and financially stable (I think) so ........................?

However, I was turned off by the demeanor of the sales staff over there. It was a very slow sales day - I guess because of people out in the malls doing Xmas shopping - and there was a football game on the TV in the reception area. Two of the salesmen were sitting there watching the game and eating lunch while I was asking the 3rd salesman about this loan thing. One of the football fans was the one who had first mentioned the BETSI to me the previous week and who had run the figures off the computer - he appears to be some sort of manager whereas my salesman has only been there 3 months or so.

I have nothing against football or having lunch in the office - but it seems to me that when a customer comes in with questions about financing, the professional thing to do would be to go into an office with her, close the door and fully explain everything to that customer's satisfaction. As it was, I found myself standing in doorway between the reception area and one of the offices trying to screen out the football game noise. I finally had to say, "May I sit down?" and "Could I close this door?" .

My salesman was very helpful and seemed to WANT to address all my concerns but I also got the feeling that he wasn't really that knowledgeable about BETSI, but didn't want to say so. I went away with the feeling that maybe they just didn't want me to dig too deeply into the program - - - - - and if so, WHY NOT?

On the other hand - while I realize that the program is to Clayton's advantage,because, after all, they ARE in business-for-profit, I want to be SURE that I'm not getting taken to the cleaners.

[rmurray]

Well....you have to do what you want to do...You are makeing the point that you should add 5 years of otherwise over priced insurance to the principle and finance this for 20 years...and you are making this out to be a good deal....Think about it..

You over pay for the insurance, you pay interest on it for 20 years...all because they can make your monthly outlay seem lower at the first...

Of course you are comparing with a fixed rate...fixed payment program with TAXES and insurance escrow that will essencially always be the same...

Of course..you have not mentioned that Clayton does no escrows...and you will have to also still pay taxes...and even with the 5 year insurance you will them have to add another monthly amount to the Clayton payment for insurance..

To be fair to your self...only compare the Clayton example with the principle and interest amount on the conventional loan since you will still have to pay taxes...

All I know is that they are REALLY doing you a favor giving you..(.a quality credit customer who should be getting the best prime rates on the market..today at about 5.5% to 5.75% for over 15 year notes...and you can get an additional 1/2% off for 15 year notes)....a discount to the great rate of 6.5%...Do you mean they would charge you 7% without the insurance....One more thing...all though there are no closing costs...(impossible when there is land involved..there are always mortgage taxes, title insurance, deed taxes)..are they also charging buy down points..To get this rate this low??? This means in addition to the over priced nature of the insurance (probably at least $ 1500 extra for 5 years over other companies)..They will charge about $ 4,464 interest on that same insurance....All this to save about $ 100/mo in the first few years...Your choice..

If you chose...the best copy of a contract to get is that of another customer with the names and addresses blacked out....fax number is 706-733-9583 attention Bob

[Meg]

Let me reiterate (from the first post about this a week or so ago) that the 6.5% rate was just used as an EXAMPLE to show how the program works. They could've plugged any rate in there. The actual rate applied to MY loan would be lower - it would HAVE to be or I wouldn't go with this program because I know I can get a lower rate elsewhere.

I just want to get the mortgage paid off in less than 30 years. As already stated, I'm 48 years old and don't want a house payment until I'm almost 80. .