You've heard of ARMs, GPMs, SAMs, HAMs and SEMs. You've read about buydowns, wraparounds, rollovers, and all manner of custom-tailored takebacks.
But are you ready for the latest wrinkle in 1984's hot-trend home loan market: the Yuppie mortgage?
A New Jersey-based mortgage lender -- with backing from the Federal National Mortgage Association (Fannie Mae), the nation's largest investor in home loans -- believes that you're ready and waiting right now, even if you're not a fully certifiable Yuppie.
Yegen Equity Loan Corp. has begun offering a mortgage aimed directly at young, upwardly mobile professionals in four states -- Connecticut, New Jersey, Ohio and Pennsylvania.
Other lenders are or will be offering similar loans elsewhere around the country, all scheduled for eventual purchase by the $80 billion Fannie Mae.
The loans have been designed for singles or couples who:
*Have good prospects for steady annual income growth over the coming five to 10 years.
*Distrust adjustable-rate mortgages -- especially the highly volatile one-year variety -- but like the idea of moderate rate discounts in the early years of home ownership.
*Absolutely refuse to sign up for any mortgage that includes "negative amortization," that is, the possibility that the principal debt will increase during the term of the loan, rather than steadily decrease.
*Have accumulated enough savings to make at least a 10 percent down payment, plus two to four "points" up front at the time of loan closing. (Each point is the cash equivalent of 1 percent of the mortgage amount.)
*Would like to save significantly on total mortgage finance costs by paying off their home mortgage in 15 years, rather than 30.
Consumers who fit this composite description tend to be (but aren't always) younger, first- or second-time buyers who are on upward tracks in their jobs, according to Everett Hassell, vice president of the Paramus, N.J.-based Yegen mortgage-banking firm.
"They're mainly Yuppies," he said, "although I'll probably get clobbered by the geriatric set" for aiming his new 15-year mortgage product at people in their late 20s through early 40s.
Yegen's Yuppie loan -- which also goes by the name Select Loan -- allows purchasers to set their initial rates at below-market levels, increase their monthly payments by 7 1/2 percent per year for four to seven years, and pay off the entire mortgage in 15 years, without incurring a cent of negative amortization.
A transaction on a $50,000 town-house loan to first-time purchasers might work like this:
The borrowers could qualify for the mortgage at their present salaries at a first-year rate of 10 3/4 percent. The true rate, however, would be set closer to the market rate of 13 1/2 percent. The borrowers would pay three to four points ($1,500 to $2,000) at settlement.
Their first year's schedule of monthly principal and interest payments would be set at the 10 3/4 percent effective rate -- $560.48. Their second-year payments would rise by 7 1/2 percent to $602.52.
In years three and four, their payment schedule would rise again by 7 1/2 percent until hitting $679.35. That amount would then remain fixed for years five through 15. By the end of the 15th year, the entire debt would be paid off.
The early payoff, in turn, would cut the couple's potential total financing charges in half, compared with what they'd owe had the mortgage carried a 30-year term.
The financial key to the Yuppie mortgage is that it's a sophisticated form of "growing equity" loan. That means that as the years go on, far greater portions of a borrower's monthly amortization payments are used to retire the principal debt than the borrower would get under typical 30-year loan terms. The Yuppie plan carries an effective fixed rate over the life of the mortgage -- quoted at one-fourth of 1 percent below Fannie Mae's national fixed rate at the time of loan commitment. The discount rates during the early years of the mortgage are funded with the "points" charged up front -- payable by a builder, a home seller, a parent or relative, or by the economy-minded Yuppie home buyers themselves.