WO2014039024A1

WO2014039024A1 - A method for granting a zero percent interest rate mortgage (no interest mortgage, interest rate free mortgage )

Info

Publication number: WO2014039024A1
Application number: PCT/US2010/058460
Authority: WO
Inventors: Amir Behnam IZADYAR; Feroza RAGNATH
Original assignee: Izadyar Amir Behnam; Ragnath Feroza
Priority date: 2011-03-24
Filing date: 2011-03-24
Publication date: 2014-03-13

Abstract

Our proposed mortgage is a type of mortgage designed for borrowers who want a totally INTEREST -FREE or ZERO PERCENT or NO INTEREST mortgage. We refer to conventional mortgages in this patent as pertaining to any mortgage in the current market that has an interest rate above zero. The eligible borrowers will pay a one-time upfront fee to the lenders or banks which will be disclosed to them as a lender fee or loan origination or loan discount or zero percent interest rate upfront fee etc. in order to receive a zero percent interest rate mortgage. The amount of unpaid principal will be paid off based on zero percent interest.

Description

TITLE

A method for granting a zero percent interest rate mortgage (no interest mortgage, interest rate free mortgage).

METHOD:

Our proposed mortgage is a type of mortgage designed for borrowers who want a totally INTEREST-FREE or ZERO PERCENT or NO INTEREST mortgage.

We refer to conventional mortgages in this patent as pertaining to any mortgage in the current market that has an interest rate above zero.

The eligible borrowers will pay a one-time upfront fee to the lenders or banks which will be disclosed to them as a lender fee or loan origination or loan discount or zero percent interest rate upfront fee etc. in order to receive a zero percent interest rate mortgage. The amount of unpaid principal will be paid off based on zero percent interest. The borrowers will not pay interest but is obligated to make payments toward the principal when due as initially agreed upon during the time of contract. The borrower will pay principal only during the term of the mortgage. See Example 1.

The amount of upfront fee will be calculated according to the loan amount and other financial investment factors such as current mortgage interest rates, Libor, Treasury, and other indexes. The banks or the financial lenders are free to invest the upfront fee as they see fit in order to receive at least the same gains as they would during the life of a conventional mortgage.

At the lender's discretion, the upfront fee can also be financed at zero percent interest rate using our method. This is true especially when the borrowers are interested in refinancing their homes and don't want to use their actual cash out of pocket but rather the equity in their homes.

Incurred standard closing costs resulting from the title company charges and/or the government and/or county fees remain the same as in the case of conventional mortgages.

Example 1:

On a $300,000 mortgage, the borrower will need to pay an estimated $74,000 upfront fee in order to receive a zero percent interest rate. The borrower's monthly mortgage payment will be 300,000/360= $833.33 per month. This payment excludes the monthly escrow payments (property tax, home insurance etc.), if any. The monthly payments will reduce the amount of unpaid principal based on a zero percent interest rate and at the end of the term schedule, the mortgage will be paid off. The borrower can choose a shorter term (20 year, 15 year,10 year, etc.) to pay off the mortgage sooner, for example, If the borrower decides to pay off the mortgage in 15 years, the monthly mortgage payment will be: $300,000/180= $1,666,67 per month excluding the monthly escrow payments.

Since the borrower has initially paid an upfront fee in order to receive a zero percent interest rate, there is no interest added to the monthly payment during the period that the unpaid principal is being paid off. The borrower is able to pay off the unpaid principal based upon zero percent interest rate.

UPFRONT FEE CALCULATION:

The concept of the upfront fee for the zero percent interest rate mortgage is calculated using the following formula:

Upfront fee (UFF) = Total interest collected in years/(l+Interest rate) Exp years + K

Explanation:

The upfront fee (UFF): The fee that will be collected upfront from the borrower in order to provide a zero percent interest rate mortgage.

Total interest collected in years: The total amount of interest in years calculated when using the note rate in a conventional mortgage.

Interest rate: The interest rate used can be the same interest rate as the note rate in a conventional mortgage or using the Libor, Treasury or other financial indexes plus the margins pre-determined by the lenders or the banks.

Exp: Exponential

K= [Total interest collected in years/ (1+interest rate)Exp years ] X R R= Risk factor

Risk factor is a compensating factor which is pre-determined by each financial lender or bank in order to cover the risk of providing a zero percent interest rate mortgage. R can be a number that is zero or higher. Please see Example 2. The lower the R, the lower the amount of upfront fee needed.

The goal of this formula is to calculate the amount of upfront fee that the banks or the lenders will need to collect from the borrowers. The upfront fee is a non-refundable fee which means that in the case of refinance or sale of the property, the death of the borrower etc. it will not be refunded. This upfront fee can be used by the banks and the lenders to invest at their discretion.

Example 2:

Assuming the borrower has a mortgage amount of $300,000 at the interest rate of 4.5%. Using the conventional mortgage method, the borrower will need to pay

$247,218.25 interest during the 30 years of the amortization.

Mortgage amount: $300,000

Annual Interest rate: 4.5%

Term in years: 30 years

Total payments in 30 years including the principal and interest: $547,218.25

Total interest payments in 30 years: $247,218.25

Pa ment Schedule:

According to our method, the borrower will pay $68,647.57 upfront fee in order to receive a zero percent interest rate.

Upfront fee (UFF) = Total interest collected in years/(l+interest rate)Exp years + K Assuming R is at 4%.

UFF= $247,218.25/(l+0.045)exp30+ [$247,218.25/(l+0.045)exp30] X 0.04 UFF= $68,647.57

The lender will collect the UFF amount and provide the borrower with a principal payment only mortgage.

Claims

We hereby claim:

1- An interest-free, zero percent interest rate, no interest mortgage comprising an

upfront fee set by a financial institute wherein the amount of upfront fee will be disclosed to the borrowers in order to grant a zero percent interest rate, whereby the amount of principal is paid off interest-free during the term and/or maturity of the mortgage; the borrowers will pay principal only and there is no interest charged to the borrowers during the term and/or maturity of the mortgage.

2- The mortgage of claim 1, wherein the incurred standard closing costs, loan origination fee, and the lender servicing fee will be disclosed to the borrowers.

3- The mortgage of claim 1, wherein the upfront fee will be added to the

unpaid principal and financed at zero percent interest rate.

4- The mortgage of claim 3, wherein the borrowers are interested in refinancing their homes or cash out from the equity in their homes.

5- The mortgage of claim 1, wherein the upfront-fee is granted by any entity; a not for profit organization, government sponsored program, private person.

6- The mortgage of claim 1, wherein securitization of the mortgage comprises of

issuing, buying and/or selling pass-through certificates issued by a financial institute.

7- A method for determining the amount of upfront fee in which the borrower can receive a zero percent interest rate mortgage using the equation

UFF=Ti/(l+i)Exp years + K, where UFF is the total amount of upfront fee, Ti is the total amount of interest collected during the term and/or the maturity of the loan, i is the interest rate, Exp years is the exponential of the loan term and/or maturity, K is [Ti/ (l+i)Exp years ] R, where R is the risk factor, being a compensating factor for the financial institute in order to cover the risk of providing a zero percent interest rate mortgage.

8- The method of claim 7, wherein R is a number that is zero or higher.

9- The method of claim 7, wherein the interest rate used is based on the current interest rate or Libor, Treasury or other financial indexes.