Introducing altgage — affordable mortgages for everyone.

We are quickly approaching $100 million of mortgages managed in our platform. To be clear, that’s less than 0.0001% of the $12 trillion in outstanding mortgage debt in the US. We are nascent, even by startup standards. The founding team is me, Vaibhav (CTO), and a small team who believes we can help homeowners collectively save $100 billion annually.

Before outlining our approach to mortgage management, let me trace my path as an immigrant founder, Ph.D., and management consultant. I have felt the pain of mortgages through decades of life experience but only recently developed the courage to make a difference. I envision a future in which mortgages are more affordable and represent a smarter path to building wealth.

Mortgages make the American dream a reality.

Mortgages fund the American dream of homeownership. 95% of homebuyers need one. Mortgages are responsible for creating $28 trillion of housing equity. That’s more wealth than the entire stock market combined. Housing wealth is also fairly distributed and less concentrated than stocks and bonds. Mortgages are conceptually brilliant. It’s a leveraged purchase of an appreciating asset that is scarce. We pay a fixed monthly payment in dollars that lose value over time to inflation. Mortgage interest adds up but is tax deductible. Home price appreciation falls straight to the bottom line.

This model of a mortgage has existed for a century. President Franklin Roosevelt helped introduce the fully amortizing loan after the great depression to finance a spending boom in housing. Housing finance in the US is the most advanced in the world. There is less than $1 trillion in savings accounts but more than $12 trillion in outstanding mortgage loans. How can banks lend more money than they have? That’s made possible by Fannie Mae and Freddie Mac, two government-sponsored agencies. FNMA & FHLMC combine and sell mortgages as bonds to investors. Money flows in from sovereign wealth funds, pension funds, and endowments to finance the American dream of homeownership.

Loose lending and risky financial engineering led to the financial crisis of 2008, but tight regulation soon followed under the Dodd-Frank Wall St. Reform and Consumer Protection Act. Responsible lending has prevailed since, mostly to creditworthy borrowers. Mortgage lending is highly regulated to protect consumers. Mortgage regulation has its own alphabet starting with Reg B, the Equal Credit Opportunity Act. (ECOA ), and extends to Reg Z, the Truth in Lending Act (TILA). So, what could go wrong?

The problem with mortgages

Mortgages have not changed much since FDR, but a lot has changed about homes and the people who live in them. Housing affordability has worsened over the last two decades and reached a crescendo during COVID-19. The American dream of homeownership has been met with a perfect storm of surging demand, supply shortages, and poor monetary policy. The Federal Reserve has whipsawed in 2022, and mortgage rates have doubled from 3% to 6%. Home prices have not fallen as fast because some buyers are still willing to pay, but the average American can no longer afford a new mortgage.

Besides macro headwinds, mortgages face four fundamental challenges:

1. Down payments are a high barrier to entry — Home prices have risen faster than income levels, so it takes longer to save for a down payment. Comparing home prices vs. incomes across two decades shows the median home price has increased from ~$189,000 to ~$443,000. Whereas median incomes have barely risen ~$30,000. The median earner would require ~16yrs to save 20% for a down payment. The disparity is extreme in high-cost areas like New York and California.
2. Mortgage decisions are complicated — A large portion of every paycheck for 30yrs is decided over a few conversations with a mortgage broker. Information asymmetry abounds; a few internet articles may have helped or hurt. For example, only 5% of homebuyers choose an adjustable-rate mortgage (ARM), but 45% stay for 10yrs or less. Short-stay homeowners would save ~0.5% in interest p.a. by choosing a 10/1 ARM. Collective savings would amount to $30 billion annually, enough to pay for all of their homeowner’s insurance. Read the CHARM booklet before taking an ARM. It’s worth the effort.
3. Amortization pays interest first — The word “amort” means to kill slowly. Killing a mortgage over 30yrs worked well when people stayed put. Homeowners now move frequently for a job or to be close to family. Hard-earned equity is lost with each move because not all equity is created equal. The first 10% of a loan can take 6yrs to repay, whereas the last 10% only takes 18 months. That is the fundamental asymmetry of amortization.
4. Home equity is illiquid and not well diversified — Once you buy a home and start paying down the principal, capital gets stuck. It’s not easy to reallocate capital to its highest and best use. There’s $28 trillion of unallocated equity in US residential real estate. The average retiree has over 80% of their net worth in home equity. That’s not great because homes provide shelter but don’t put food on the table.

The mortgage industry is evolving at a snail’s pace because incumbents like big banks aren’t incentivized to innovate. New players like “Better mortgage” have not lived up to their name. The experience of getting a mortgage is better, but the rates are often worse. When borrowing large amounts of money, cheaper is best. Mortgage servicing is another graveyard of innovation. Most homeowners cannot name their servicer. It’s as unsexy as a business can get. Many servicers collect payments via a website built circa 1990 and write checks to the tax authority and insurance companies once a year. Mortgages take the lion’s share of every paycheck for most of adult life. Homeowners deserve more.

A mortgage represents a real opportunity for wealth creation, yet there’s a disconnect between wealth managers and the mortgage industry. Wealth managers cater to the already wealthy because 1% of nothing is nothing. If wealth equals assets minus liabilities., how can the largest liability be so ignored?

That’s where altgage comes in.

My road to altgage

My parents purchased our family’s home in 1995 using a “shadow” mortgage. I was eight years old and did not comprehend how it was cobbled together from formal and informal credit mechanisms, the latter of which was undoubtedly predatory. This memory left a lasting scar, and I vowed never to get a mortgage. I’d be able to buy a home for cash one day, or so I thought. That stance lasted until I completed a Ph.D. in the U.S., fell in love, and my son became a toddler who quickly outgrew our apartment. A child’s unspoken needs can replace a parent’s ill-conceived notion of how life should proceed. My wife and I bought our first home in 2020 as the pandemic settled in. I had just been elected as a junior partner at McKinsey & Company, the consulting firm. Life seemed on track until I had to relive the mortgage process, this time as an adult.

My Ph.D. seemed useless. Mortgage jargon is impressive, even for a career consultant. Thankfully, I knew how to use a spreadsheet and quickly learned to make an amortization table. I would encourage every homebuyer to learn how to make one. Then came sensitivity analysis to understand the tradeoff between monthly affordability and lifetime cost. The answer was 23yrs. I summarized my three quick points and proudly presented the answer to my wife. As a doctor, she was equally bemused by mortgage math. It fell outside her normal physiology, but she was happy to listen. Mortgage terms are presented as binary choices: 15 or 30, fixed or adjustable, but they don’t have to be. We wanted a 23 yr mortgage in a 10/1 ARM because it was 13% more per month for a 23% shorter mortgage. The ARM lowered our interest rate by 0.4%, and we were sure that our first home would maybe last 7yrs. That 0.4% translated to ~$3000 in savings was enough to cover our annual hazard insurance premium. I was confident in my analysis.

The mortgage broker responded —

“We can’t do a 23yr mortgage — that’s not normal”

I asked the broker — “why not?” and have not stopped asking that question about mortgages ever since. Odd-term amortizations aren’t common because mortgages are pooled, packaged, and sold to bond investors. Mortgages have to fit neatly into boxes; however, regulation under Dodd-Frank eliminated prepayment penalties and other risky features like balloon payments and negative amortizations for “qualified mortgages.” Prepayment is amazing. A consumer can make a 30yr mortgage behave like a 23yr mortgage by applying the difference in their monthly payments to principal. This trick can force a 30yr loan to behave to any loan length because mortgages are based on simple interest.

Mortgages are simultaneously simple to get and difficult to understand because there’s a $12 trillion industry waiting to collect $500 billion in interest payments each year. The point is that mortgages are made for banks, not people. There’s a lot of entrepreneurship to eliminate the real estate agent, but almost none to enhance the mortgage broker as an effective wealth advisor. For a debt that lasts 30+yrs, there is a glaring hole for a fiduciary to serve the best interests of homeowners. We’re building altgage to be a prudent advisor for your mortgage from inception to retirement.

What altgage do today...

We’ve identified two large problems for homeowners: sub-optimal mortgage decisions at origination and poor management during the 30yr pay-back period. To tackle these problems, we’ve built two smart solutions that are independently valuable. Together, they pack a powerful 1–2 combo to build wealth over a multi-decade timespan:

1. Deal Optimizer — helps create smarter mortgages with down payment grants, discounted interest rates, and credit upgrades the lower PMI and boost purchasing power.

2. Altgage Refi — is a smart all-in-one dashboard that tracks rates for refinancing, sends timely alerts and also enables access to equity.

The future is smarter mortgages that lead to richer lives

Deal Optimizer and the Altgage Refi are just the beginning. There’s a lot more innovation coming to help homeowners everywhere.

1. Smart Mortgage PrePayments: Mortgages payments are unfair. It's interest first and principal is paid back slowly. We're building a smarter pay to pay a little more upfront and save $100K+ of interest over time. Prepayments decrease each month and the mortgage gets shorter by up to 10yrs.
2. Debt Management: Mortgages are often the cheapest sources of debt because they are secured by homes. Homeowners with significant equity should be able to consolidate credit cards and other high-interest debt, improve cash flows, and pay off debt even faster.
3. Mortgage Diversification: Mortgages build a concentrated form of wealth. Homeowners can diversify mortgage debt by pairing it in small quantities with emerging asset classes that are as scarce as housing. Portfolio allocation and rebalancing are essential to wealth building.
4. Mortgages for Retirement: There are over 10 million retirees who still have a mortgage. The home equity conversion mortgage, or HECM, is an amazing product that is deeply misunderstood. Home equity can help plan for a longer retirement, improve your lifestyle, and leave a lasting legacy with proper portfolio coordination with an IRA or 401k.

There is a lot of innovation happening in mortgage verticals from an industry perspective, like Vesta for loan origination and Haven for loan servicing. Origination-focused startups like Tomo and Morty are also helping improve the consumer experience, but we haven’t yet seen any multi-product companies that aspire to build a multi-decade relationship with homeowners. That’s why we’re building altgage.

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