Which is better, a ladder of bullets (fixed rate advances) or an amortizing advance?
The shape of the advance curve is a big factor in determining which advance type gives you the most profit. Laddering bullets simply creates a customized amortizing schedule in which certain amounts of principal are reduced at different maturities. The effective advance rate of a ladder ultimately depends on the amounts placed in each bucket. The effective rate will be lower if more principal is placed in the shorter term buckets in a positively sloping yield curve. Keep in mind, there will be more tail risk with this type of transaction if your customer has a standard mortgage payment schedule. Ultimately, an amortizing strategy should be compared to a bullet strategy in terms of total interest paid over the life of the transaction. Our Member Services staff has tools to help you determine which funding vehicle makes more sense for your transaction.
