A North Carolina company has received a patent for a mortgage add-on meant to encourage savings.
The company, Hitco Ltd. of Greensboro, N.C., says no other mortgage product had been patented before.
Hitco's Mortgage Assisted Retirement Systems product, or Mars, is meant to encourage homeowners to sock away the mortgage interest deduction anticipated on their income tax return.
At closing, an initial deposit of at least $1,000 would be put in a Mars investment account, which would be managed by a brokerage house of the homebuyer's choosing. The borrower could choose such investments as retirement, college, or mutual funds.
Monthly, quarterly, or annual contributions to the Mars account could be added to the loan payment or debited from a deposit account.
Mortgage insurance would be mandatory, and Commonwealth Mortgage Insurance Corp., Philadelphia, is the exclusive insurer for the product. In case of default, the insurer and the bank could tap the investment account.
Lenders would offer a quarter-point rate cut as an incentive to take out Mars loans. Loans could be originated with the Mars feature, or it could be added to existing mortgages, including purchase, refinancing, FHA, VA, and nonconforming loans.
Mars will be available next quarter, said J. Dean George, who invented it and owns Hitco.
He said two banks, which he would not name, have agreed to offer Mars loans. One is based in North Carolina, he said, and the other in Jacksonville, Fla.
Mr. George said Mars will create cross-selling opportunities. "You have got a qualified client base there that is going to be loyal to the bank," he said.
Right now, he said, the mortgage lending business is "like a revolving door."
Mr. George said that he is targeting homebuyers earning $30,000 to $200,000 a year, and that he plans to expand to FHA loans after introducing the product.
Borrowers cashing out after three years would lose their quarter-point rate reduction and a lower rate on their mortgage insurance.
"You can cash out if you need the money after three years," Mr. George said, "but it's not in your best interest.
"After three years the power of compounding interest has not really taken effect. From year 10 to 15 it just flies, and from year 15 to 30 it's phenomenal."
Mr. George estimated that the average mortgage company could fund about 10 Mars loans a month initially. Banks not carrying the product could offer it through a licensing agreement with Hitco.