BRED Slices Mortgages Into Affordable Pieces





Baby boomers have long been the movers and shakers of the real estate market, but millennials are expected to be the biggest buyers in 2019. Millennials are projected to account for 45 percent of mortgages, compared to 37 percent for Generation X and 17 percent for boomers in the new year. This trend is expected to continue well into the future, as millennials climb the income ladder and trade up to homes in mid- to upper-tier prices.1

One big problem is people shopping for homes today tend to have more income than savings to contribute to a down payment. To help younger buyers qualify for a home loan, the mortgage market has rolled out a new type of mixed-rate mortgage, called the blended rate equity driver (BRED).

This type of loan pairs both fixed and variable mortgage structures into a single first‐lien mortgage using a combination of the 30‐year fixed rate mortgage (FRM), the 15‐year FRM and the 5/1 adjustable rate mortgage (ARM).2

The specific mix can be tailored to the buyer, but in each case, the goal is to have equity grow faster through principal payments. Typically, a homeowner garners home equity via three paths: down payment, price appreciation and principal payments over time. However, the real estate market moves fast and is unpredictable. Homebuyers are more transient these days and want the option to relocate, if necessary, so they don’t get stuck with an unaffordable mortgage.

While it’s important to match a home and mortgage to meet your specific needs, it’s also critical to do so with a long-term perspective toward your eventual retirement and financial goals. It’s normally advisable to live within one’s means, but when it comes to buying a home, better advice may be to live below your means. Be sure to consult with a professional mortgage lender or broker to help decide what’s best for your unique situation.

Purchasing a more affordable home frees up more discretionary income that can help create a better financial future. Please contact us if you’re looking for ways to add more confidence to your retirement income plans through the use of insurance products.

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1 Aly J. Yale. Forbes. Dec. 6, 2018. “2019 Real Estate Forecast: What Home Buyers, Sellers And Investors Can Expect.” https://www.forbes.com/sites/alyyale/2018/12/06/2019-real-estate-forecast-what-home-buyers-sellers-and-investors-can-expect/. Accessed Dec. 9, 2018.

2 National Association of Realtors. 2018. “BRED Mortgage: More Money in Your Pocket.” https://www.nar.realtor/sites/default/files/migration_files/bred-mortgage-introduction-10-19-2015.pdf. Accessed Dec. 9, 2018.