Lenders that offer global mortgages may require a high credit score or a down payment. Global mortgage rates tend to be higher than the interest rates on qualifying mortgages because of the risk involved. A lump sum payment is usually more than twice the average monthly loan payment and can often be tens of thousands of dollars. Most global loans require a significant payment that amortizes the remaining balance at the end of the loan term.
If you are considering a global loan, you should think about whether you can make the lump sum payment when it expires and how to do it. Regulation Z requires banks to assess the applicant's ATR on most mortgage loans, including mortgage loans with a lump sum payment (a payment greater than double the regular periodic payment). Most applicants cannot meet the ATR requirement when the creditor includes the lump sum payment in the assessment. Specifically, the borrower does not have the necessary income to cover the payments that occur when the lump sum payment is included in the calculation.
Banks have limited alternatives in this situation. Creditors originating global loans must meet certain Regulation Z criteria to exclude the lump-sum payment from the ATR calculation. The examiners identified several cases in which banks did not follow these criteria as expected. We detail these cases to help creditors avoid making similar mistakes.
Global payment structures are most commonly used for commercial loans, although they are also available for auto loans and mortgages. Some states have banned mortgages with global payments for consumers and have imposed significant restrictions on global auto loans. In the case of auto loans and mortgages, borrowers generally must make a large down payment to qualify. Global mortgages allow eligible homebuyers to finance their homes with low monthly mortgage payments at first.
Single-interest mortgages and other global mortgages are typically used by high-net-worth homebuyers who have high credit scores and enough capital to pay high principal under a normal repayment schedule. Most global mortgage borrowers don't actually make the lump sum payment when the low payment period ends. Rather, to avoid paying the large lump sum in cash, it's common to refinance with a different mortgage or sell the house first. Global payments aren't as common for auto loans as they are for mortgages or commercial loans.
However, credit restrictions are less stringent in the auto loan industry, making it a little easier for consumers to apply for these types of loans. Some global mortgages include only interest, meaning that you don't pay any of the principal of the loan until the lump sum payment is made. Others include both interest and principal payments. Either way, since these are short-term loans, you'll generally accumulate little or no capital in your home when the lump sum payment is due.
Home equity is a valuable tool you can use to access credit, such as home equity loans, home equity lines of credit (HELOC), or a mortgage refinance with cash disbursement. You could use a global mortgage to buy a home with lower payments that fit your current income and refinance it with a traditional mortgage when you get a job. These rules are relevant to banks in the Ninth District, which continue to provide mortgage loans with global payments, in particular because recent regulatory changes affect qualifying mortgage options for small creditors. Some lenders intended to meet the standard for qualifying mortgages for lump sum payment (BPQM), which includes requirements for both the creditor and the loan, but did not meet all the qualification criteria.
You may be able to get a conventional mortgage with a down payment of as little as 3%; there are even conventional mortgages with 100% financing...