The financial instrument is the part of The Family Office Mortgage that sits beside the loan. It is a structured financial product. You fund it at closing with 30% of the purchase price, and a bank finances further funding of it. From year 16 its projected payout is designed to make the mortgage payments, and from year 31 the same payout is designed to be paid to you. Every payout figure in this article is projected and not guaranteed.
What you contribute
You contribute 30% of the purchase price to the instrument at closing, on top of a 20% down payment. The mortgage covers the other 80% of the price. It comes from your lender or one the team introduces, because the program is not a lender.
| On a $4M home | Amount |
|---|---|
| Down payment, 20% | $800,000 |
| Contribution to the financial instrument, 30% | $1,200,000 |
| Committed at closing | $2,000,000 |
| Mortgage | $3,200,000 |
The price of the home does not change. What changes is what your capital does. A traditional mortgage takes a small share of the price now and thirty years of income afterward. Here, $1,200,000 of your capital is at work from the first day on the payments that come later. Capital is the advantage, and this is how the structure uses it.
What the bank adds
Your contribution is not the only funding. A bank finances further funding of the instrument, so it is funded beyond what you put in. That financing is the bank’s loan. It is a separate contract with its own interest and collateral terms, and the bank approves it. Where collateral is called for, existing assets can be pledged, not sold.
The bank’s loan is planned to be repaid from the instrument around year 15. It is not the mortgage, and it follows its own schedule.
Years 1 to 15
For the first fifteen years you pay interest only on the mortgage. The Consumer Financial Protection Bureau describes an interest-only loan as one on which you pay only the interest for a specified time, and the amount you owe does not go down. In the reference example, a $3,200,000 mortgage at an assumed 6.5%, the payment is $17,333.33 a month. The rate is an assumption, not an offer.
In the reference example, those payments and the $2,000,000 at closing are everything you put in: $5,120,000 in total. During these years the instrument’s values, the bank’s loan and the collateral are reviewed against the plan every year.
Years 16 to 30
In year 16 the mortgage begins to repay principal, and the scheduled payment becomes $27,875.44 a month, or $334,505.23 a year. This is the instrument’s first job. The projected payout of $340,000 a year begins, taken as loans against the instrument, and it is designed to make the mortgage payments.
The payout is designed to match the scheduled payment. In the reference example it covers 101.6% of it, which leaves $5,494.77 a year. Over the fifteen years, the mortgage payments made by the instrument come to a projected $5,017,578.42. The mortgage runs its full 30 years and is repaid at the end of year 30.
Year 31 onward
Once the mortgage is repaid, the same projected payout is designed to be paid to you: $340,000 a year in the reference example, through year 62, the last year shown. Across years 16 to 62 the projected payout to you is $10,962,421.58, which is $5,842,421.58 more than the $5,120,000 you put in.
The payout is paid during the lifetime of the person the instrument covers, who may be you, a spouse or an adult child. After that, the instrument pays a benefit to the family, net of any loans against it.
The plan by year
| Years | What you pay | What the instrument is designed to do |
|---|---|---|
| At closing | $800,000 down and $1,200,000 into the instrument | It is funded by your contribution and the bank’s financing |
| 1 to 15 | $17,333.33 a month, interest only | The bank’s loan is planned to be repaid from it around year 15 |
| 16 to 30 | Nothing further in the reference example | A projected payout of $340,000 a year makes the $334,505.23 scheduled payment |
| 31 to 62 | Nothing | A projected payout of $340,000 a year is paid to you |
The debts stay separate
Three debts sit inside the plan: the mortgage, the bank’s loan and loans against the instrument. Each has its own lender and its own schedule. The bank’s loan is planned to be repaid from the instrument around year 15. The mortgage is repaid at the end of year 30. Loans against the instrument are how the payout is taken, and they are settled from the benefit paid to the family.
Repaying one does not retire the others, so ask to see all three balances, year by year.
How it is managed
A projected payout has to be managed, and that is the team’s work.
- Every transaction is underwritten by the team before it is proposed.
- Each case is modeled under a conservative risk profile and run through simulations across many market paths.
- The issuer underwrites the person the instrument covers, the lender qualifies you for the mortgage in the usual way, and the bank approves its financing.
- After closing, the instrument’s values, the bank’s loan and the collateral are reviewed against the plan every year, so adjustments are made early.
- Your CPA and attorney review the proposal before anything is signed. The advisor brief is written for them.
The team has done hundreds of transactions. How the risks are managed covers its part in more depth.
What projected means
The $340,000 a year is the design figure for the reference example. For your own home, the figures come from the issuer’s illustration for the person the instrument would cover, which shows how the instrument is expected to perform under the assumptions set out in it. Every payout figure, here and in the calculator, is projected and not guaranteed. The disclosures set out what the instrument is, who provides it and how to read the illustrations.
What is a Family Office Mortgage? explains the whole structure, and the comparison sets it beside a traditional mortgage, year by year.
