Monthly Payments on DPA and Terms of DPA

Borrowers generally do not face prepayment penalties for paying off the second mortgage early. In fact, for the repayable option, paying off the balance early can save you money on interest since the rate is 1% higher than your first mortgage. However, specific provisions apply to the lender regarding early payoffs within the first seven months (premium refunding), but this is an obligation between the correspondent lender and CBC Mortgage Agency. As a borrower, if you wish to eliminate the monthly payment on your repayable second lien, you can request a payoff statement from Midwest Loan Services and clear the debt.

If you sell your home, transfer the title, or refinance before the forgiveness conditions (36 consecutive on-time payments) are met, the full amount of the down payment assistance becomes due and payable immediately. For the Forgivable product, you would repay the original principal amount since the interest rate is 0%. For the Repayable product, you would pay the remaining principal balance plus any accrued interest. The assistance is a lien on your property, so it must be satisfied at the closing table just like your primary mortgage.

Refinancing the first mortgage is generally restricted if you have an active Chenoa Fund second mortgage. For Repayable loans, subordination (keeping the second loan in place while refinancing the first) is not allowed during the first 36 months; it may be considered after 36 months if you have a perfect payment history. For Forgivable loans, subordination is generally not allowed at all. Refinancing the first mortgage typically triggers a “clawback” where the forgivable status is lost, and the loan must be repaid in full. You should contact the servicer before attempting any refinance.

The Repayable Second Mortgage has a fixed term of 10 years (120 months). This is significantly shorter than the standard 30-year term of the first mortgage. While a shorter term means you pay off the debt faster, it also results in a higher monthly payment relative to the loan amount compared to a longer-term loan. This term applies regardless of whether you choose the 3.5% or 5% assistance level. Importantly, this product allows for “High Balance” loans, which are permitted for both 3.5% and 5% assistance amounts under the repayable structure.

Because the down payment assistance is a separate loan from your first mortgage, it may be serviced by a different company. If you have a Repayable Second Mortgage, your loan is serviced by Midwest Loan Services. You will receive a First Payment Letter at closing instructing you to send your monthly payments to their specific address (P.O. Box 209, Hancock, MI 49930). It is crucial not to send this payment to the servicer of your first mortgage (CBC Mortgage Agency), as they are separate entities. Borrowers with Forgivable loans do not make payments and generally do not interact with a servicer unless requesting a payoff or forgiveness.

The Chenoa Fund includes a “reset” provision for borrowers seeking forgiveness. If you make a payment on your first mortgage that is 30 days or more delinquent during the initial 36-month period, you do not default on the second mortgage. Instead, the forgiveness counter resets to zero. You must then start a new streak of 36 consecutive, on-time payments to re-qualify for forgiveness. This opportunity to reset and try again remains available to you for the entire 30-year term of the loan, providing a safety net if you experience temporary financial difficulty.

Forgiveness is earned through consistent, on-time payments on your first mortgage. For both the 3.5% and 5% assistance amounts, the second mortgage is forgiven after you make 36 consecutive, on-time payments on your FHA first mortgage. “On-time” means the payment was made within the month it was due and was not 30 days or more delinquent. Once you meet this 36-month requirement, the principal balance is waived, and the lien is released. You typically must request this forgiveness and pay a fee for the lien release processing once the conditions are met.

The Forgivable Second Mortgage is designed to be a “soft” lien with very favorable terms for borrowers who plan to stay in their homes. It has a loan term of 30 years, but it carries an interest rate of 0%. Because the rate is zero and no payments are required, the balance does not grow over time, nor does it decrease through amortization. The lien simply sits against the property until it is either forgiven after you meet the payment requirements on your first mortgage or repaid upon a specific “trigger event” like a sale or refinance.

The interest rate for the Repayable Second Mortgage is directly tied to the interest rate of your FHA first mortgage. Under current guidelines (Version 12.27), the interest rate for this second lien is set at 1% higher than the note rate of your first mortgage. For example, if your first mortgage has an interest rate of 6.5%, your repayable second mortgage will have a rate of 7.5%. Because this loan is fully amortizing over a 10-year period, you are paying down both principal and interest with every payment, unlike the interest-free forgivable option.

Whether you make monthly payments depends entirely on the specific product you choose. If you select the Repayable Second Mortgage, yes, you must make monthly payments. This loan is fully amortized over 10 years, requiring principal and interest payments until the balance is paid off. However, if you choose the Forgivable Second Mortgage (often called a “soft second”), generally no monthly payments are required. This loan carries a 0% interest rate and requires no payments ($0/month) for its 30-year term, provided you remain in the home and meet the specific forgiveness conditions outlined in your loan documents.