The Cost of Fixed-rate (for lack of a better term) Security

The purported attraction of a fixed rate loan is security.  The lender assumes all the risk of changes in interest rates. That comfort comes at a price, however. On one hand, the borrower knows what his or her rate and payment will be for as much as thirty years. This price premium is, in effect, insurance that the borrower buys annually to have the lender assume the interest rate risk. Over the life of the loan, the cost of that insurance can add up:

Additionally, most (not you, of course) home owners that have owned a home for 10 years have a refi history that looks something like this:
  • 2002 - $300,000  30 year fixed 6.5% to lower monthly payment.
  • 2005 - $375000  20 year fixed 5,25% cash out at historically low rates.
  • 2010 - $350,000  20 year fixed 4.25% to lower rate and payment
  • 2013 - $327,000 15 year fixed 3.25% to save a ton of money in interest.
Average cost (whether out of pocket, out of equity or via a higher interest rate, I promise you, there's always a cost) per transaction: $4500 x 4 refis = $18,000.

Security? Only in an ideological sense.  

Whenever you find yourself on the side of the majority it's time to pause and reflect.  ~Mark Twain

Up next: Tough Love

Choosing Between Adjustable Rate and Fixed Rate Loans: The Best Financial Decision May Surprise You

The most basic decision home buyers and home owners have to make is whether to choose a fixed rate loan or an adjustable one. It isn’t easy to break through media hype and find real data on which to make a sound, objective decision about which type of loan would be better long-term. Unfortunately ARMs have been mostly prescribed as a way to afford a bigger home.  Dumbdumbdumbdumbdumb!  Whether it be borrowing or drinking, DO SO RESPONSIBLY!

A Short History (talking mortgages, not alcohol)
Americans have been regular customers of lenders selling fixed-rate loans since just after World War II. The fixed rate and payment provided a secure way for a growing middle class to achieve home ownership. Back then, adjustable rate loans as we know them today did not exist, so borrowers had little choice.

More recently, adjustable rate home loans have become widely available; however, they are still largely viewed with suspicion by a majority of borrowers. Adjustables make up only 15-25% of all home loans funded in any given period. Many of these are actually hybrid loans that have an initial fixed rate period of 3-10 years. Borrowers with hybrid loans generally plan to refinance out of the loan when the fixed period ends, so they are really choosing a “short-term” fixed rate loan rather than a true adjustable rate loan.

The “Problem” with Adjustables
The decision to choose an adjustable rate home loan over a fixed rate loan is a hard step to take for most people, for one reason: A fear of rising rates.  Many borrowers are old enough to remember, or have heard of, the Carter-era mortgage rates in the high teens, and most people think high inflation was to blame, and even though that's not how it works, this fear of the unknown motivates borrowers to choose the “safer” fixed rate alternative.
This decision is usually not in the best long-term interest of the borrower. It seems paradoxical, but in many cases choosing some sort of adjustable rate loan is actually the better financial decision. This is driven by two factors:
• The security of a fixed rate comes at a price (a higher rate compared to adjustable loans long-term).
• Over time, the interest rate risk of an adjustable rate loan diminishes, as the rises and falls of rates even out with the rhythms of the American economy.

Next, we'll look at the cost of fixed rate security to see how and why adjustable rate loans can outperform fixed rate loans over time.

Where da ya come from, son? (CMG HISTORY)



CMG Mortgage, Inc. was initially founded by Christopher M. George in July of 1993 in Pleasanton, CA. From modest beginnings and seven employees, the Company and its initial team focused on speed of execution and superior service. Low overhead enabled competitive pricing, which also contributed to the Company’s initial success. By 1994, the company quickly outgrew the initial space and relocated to its current office located in San Ramon, California.

Diversification into Wholesale Lending

In 1995, the Company opened a wholesale lending division, initially focusing on correspondent lending to achieve better pricing at retail. As this fueled growth, the Company secured various warehouse lines of credit, enabling even more significant expansion of the business. In effect, this enabled CMG to fund loans without being solely dependent on the brokerage business.

During this time, CMG also partnered with Calyx Software which produces Point®, the number one loan origination software platform, and became integrated into the software application as one of the select few Lenders in Point. This enabled true end-to-end integration and gave CMG’s wholesale division a high level of visibility among the large number of brokers using Point.


From 1996 through the end of the decade, CMG expanded successfully on the retail and wholesale foundations it had built. The Company purchased The Mortgage Line and Bay Pacific Mortgage, consolidating a large number of loan officers into a new CMG retail branch in Walnut Creek, California (CMG purchased two companies: The Mortgage Line and Bay Pacific Mortgage, consolidating a large number of loan officers into a new CMG retail branch in Walnut Creek, California). As the Company became licensed to lend on a wholesale basis in more and more states, the company opened two new wholesale lending offices in Concord (Northwest region), and in San Diego (Southwest region). This led to another stage of growth for CMG, as it was able to penetrate existing markets more thoroughly.

In 1999, the Company surpassed $1 billion in origination volume for the first time and continued its growth trajectory by focusing on speed and superior service.

Pacific Guarantee Mortgage

By 2003, CMG purchased the assets of Pacific Guarantee Mortgage (PGM), the nation's leading branch networking organization, from the Royal Bank of Canada. This included 32 branches in seven states. The PGM Retail Branch Network both brokered and banked loans with CMG, providing a significant source of wholesale lending business and fee income. In exchange, CMG handled key back office functions such as human resources, compliance, accounting, marketing, and benefits. The arrangement created economies of scale and freed the branch managers up to focus on core business growth. PGM continued to secure new net branches as independent mortgage brokers saw the advantages of charting their own course while being part of a world-class organization. CMG was awarded the prestigious Broker of the Year award by the California Association of Mortgage Brokers (CAMB) and was named one of the San Francisco Bay Area’s 100 fastest-growing companies by the San Francisco Business Times.
An Integrated Financial Services Company

Later that year, CMG created CMG Financial Services, a holding company that included the core business units of Retail (CMG Mortgage Services), Wholesale (CMG Mortgage, Inc.), and at the time, net branching (Pacific Guarantee Mortgage). The Company had taken initial steps to add a fourth major business unit, CMG Bank, and by 2005, secured approval to establish a Federal Savings Bank charter with the federal Office of Thrift Supervision. The project was put on hold pending the launch and development of the new Home Ownership Accelerator loan.

Introducing the Home Ownership Accelerator

In 2005, CMG Mortgage launched the revolutionary Home Ownership Accelerator (HOA) loan, the first consumer friendly and “all-in-one” loan in America. Based loosely on a concept popular in Australia called an offset loan, the HOA takes the idea a step further, integrating a full-featured checking account with a line of credit, creating the most powerful home finance tool available to homeowners. The HOA works just like a regular checking account (unlimited checks, ATM, online bill-pay, etc.). The substantial interest savings generated by this process means that a typical borrower with positive cash flow can often pay off in around half the time, and save tens or hundreds of thousands in interest, with no change to their spending habits. By 2008, when the real estate and mortgage markets began to collapse, the investor for the HOA pulled out of the market.

Throughout 2008 and the early part of 2009, CMG worked tirelessly to find another investor for the HOA. Towards the latter part of 2009, CMG officially partnered with Ameriprise Bank, FSB, a Fortune 300 Company (Ameriprise Bank: FSB, a Fortune 300 Company), to re-launch the HOA. Additionally, CMG was issued a patent for the HOA (payment system and use) by the United States Patent and Trademark office in December 2009. Since the re-launch, CMG and Ameriprise Bank, FSB have been offering the HOA to the most credit worthy borrowers through the wholesale and retail channels with plans underway to offer the HOA through a correspondent lending channel.

The past and current HOA portfolios are largely unmatched in terms of quality and performance. Today, the HOA is approved in 32 states with plans and activity to grow towards a national offering of the product. Since funding the first HOA in September 2009 with Ameriprise Bank, FSB, CMG Mortgage has closed more than 850 HOA loans for over $400 million. CMG Mortgage’s goal is to offer the product nationwide; allowing Americans throughout the United States the opportunity to own their homes free and clear while paying the least amount of mortgage interest.

'badee-badee-badee-That's all folks!' 
                         ~Porky Pig~