I was at my massage therapist yesterday (I was in an auto accident last July) and she was “talking mortgage” with me because she thought I find the conversation relaxing. 🙂 She recently was in the process of going through a refinance (with someone else, aahhhh…even more soothing) and discovered she has a prepayment penalty of $7,000 on her current mortgage. She called off the refinance even though it could save her a couple hundred dollars a month (she may not keep her current residence for long, so this may not be a good move for her…I do not have all of her financial details, so I cannot provide a professional opinion).
Apparently her original lender never disclosed her prepayment penalty; at least she does not recall such a discussion. She was very surprised with how little she knows about her largest debt. She’s not alone.
I’m challenging RCG readers to make sure you understand your current mortgage. I double dog dare you to dig up your Note (this should be with the inch thick stack of papers you received at your signing appointment) and confirm:
- What is your interest rate?
- How is the mortgage amortized?
- Is there a prepayment penalty?
Is your mortgage an Adjustable Rate Mortgage? I have some additional questions…just for you:
- What is the date that your mortgage scheduled to have the first rate adjustment?
- How will your new rate be determined? (What is the margin and index).
- How much can your mortgage adjust when the fixed payment period is over?
- How often can your mortgage adjust when your fixed period is over?
- Do you have deferred interest or negative amortization?
In light of all the press mortgages are getting these days, this is a good excuse to brush up on yours. Just like my Massage Therapist, your Loan Originator may not have fully explained the details, or maybe you were so caught up in purchasing or financing your home, all those numbers slipped by. It happens.
It’s up to you to make sure you are massaging your financial future to work in your best interest. You can always contact your previous Loan Originator and have them explain your mortgage in fine detail or find another Mortgage Professional to help you.
Rhonda,
It always amazes me when people seem to have no idea about the loan they have accepted. This is particularly true in recent times with the increased use of pay option arms and subprime 2/28s.
In Sacramento, real estate prices have declined very dramatically. This has effectively closed the escape hatch for those who need to refinance once those loans begin adjusting.
As I take the desperate calls every week, I always ask how people acquired these dangerous loans. A pattern has emerged. The answer is usually that a friend or family member, relatively new to the business, got them a great “deal”.
The naive trust accorded too easily to one’s close circle, combined with a total focus on rate and cost has led many to a painful conclusion of their home ownership experience. So chasing “cheap” didn’t turn out to be less expensive in the end.
Time to challenge consumers not only to know their loan, but to value experience and knowledge in those they do business with.
Very true, Marc. Some people give more consideration picking a hair stylist than mortgage or real estate professional.
Would any real estate professionals care to ballpark the percentage of these dangerous deals closed by fellow experienced and knowledgeable members of their industry? Would any commenters care to (anonymously if need be) reveal if they might have sweetened their own sales mix with a bit of subprime sugar over the last year or two? If you did, did you swear off these deals before lenders tightened up, or only after? Buyers are growing cautious, and may ask you to describe not only how experienced and knowledgeable you are, but to demonstrate credibly that you did business ethically amid all the temptation of the subprime years.
Tomasyalba,
I did a post on RCG about my business mix, which includes subprime loans (small perectage). The subprime borrowers received extensive counseling from me–I feel these loans were intended to be used as “band aids” and to give many a chance to own who otherwise would not have had a chance to do so. For them, waiting to have 3% plus for down payment (plus savings for resevers) would have been outpaced by our local appreciation of home prices. There are people who I advised to not buy homes (ex. one couple did not have a bank account because they couldn’t manage their debit card), and they either took my advise or went elsewhere for financing.
Thanks for the informative reply, Rhonda – I hope that couple let your advice sink in! Sounds like you’re well-positioned to help people learn how to participate responsibly in this newly volatile market.
can anyone help with some advice? I am late on my first and second mortgage loans for 4 months now. I called Indymack Bank and they say there is nothing they can do because they only service the loan, what does that mean?
Who can help me from going into foreclosure and losing my home? is there a way to add the late payments to the loan, make it a lower interest rate, for 40 years instead? The person I talked to told me my income is not enough to make the payments so they can’t help me and I just have to wait until they foreclose my home???
I”m so thinking about bankruptcy.
Marjorie, I suggest that you contact an attorney who specializes in bankruptcy and foreclosures as soon as possible.
It’s crucial to get help as soon as you start to slide (hopefully before). Lenders are going to have to decide who can be saved and who cannot and it’s not going to be easy for anyone. Even what President Bush is offering with Paulson (the five year freeze), the borrower has to be able to make the mortgage payments.
Here is HUD’s link regarding foreclosure prevention: http://www.hud.gov/foreclosure/index.cfm
Here is Hope Now: http://www.hopenow.com/
There are counselors with each; however I’m not sure how much help they will be…you have nothing to lose trying to call them to see what advise they have.
Marjorie, here’s a very good blog you may want to check out on foreclosures and what to do if you’re falling behind courtesy of Mike’s Minute.
Marjorie, if you call me on my mobile number, I probably know a good attorney that does Chapter 13 in your area (assuming that’s the greater Puget Sound area). That may not be the answer, but at least it’s something you should check out earlier rather than later.
Kary, I would love that info for people in need as well. Please drop me an email.
We are in the process of purchasing a home (closing cost agreed upon) and the today’s news about Fannie and Freddie along with the drop in interest rates was welcomed.
During a conversation with our loan officer today he said the rate was already fixed (we never asked for the rate to be fixed) and that the rate could be adjusted (lowered) at any point within 60 days after closing with no fee.
1 – Can the bank lock out loan without consent from us?
2 – Should we be as skeptical of the last comment (lower rate on loan 60 days after closing) as we think we should be?
You don’t say what state you are in, but WA state requires a written lock agreement, at least for mortgage brokers.
I’d be skeptical of #2, unless you get it in writing, and clearly understand the terms.
Depending on how far along in the process you are, you may want to consider another lender.
Best of luck!
Micky, do you have anything in writing from the LO? It seems odd to me that the rate would be adjusted within 60 days after closing. I’m happy to review what has been provided to you (email or fax it to me)…the key is to get it in writing.
I will sometimes lock in a rate without my clients consent. However, when I do that, it’s in a market where I’m concerned rates are climbing AND I have the option of re-locking when the client decides to lock. It’s really the clients choice–not the banks.
What can I do if my escrow was calculated wrongly on my final hud statement, and my lawyer didnt point it out to me. Three months later MY MORTGAGE PAYMENTS GO UP BY 500 DOLLARS due to professional people making mistakes in figures. Now my home might go into foreclosure as I’m unemployed at the moment. We would not have bought the home if we knew the payments would be so high. We signed for payment of 1900.I live in New jersey
lily, did your mortgage payment go up $500 dollars a month or was there a $500 shortage?
If you’re in danger of losing y our home, you need to contact your mortgage company (where you make your mortgage payments right away).
Was it new construction?
There is nothing is inherently wrong with the Option ARM type loans. The problem is the inappropriate application, misuse, and lack of understanding the loan. I think problem has a large contribution to the current real estate market foreclosures and short sales. It is a complicated program. Most homeowners don’t get it.
I am amazed at the number of loan professionals who lack an understanding of the loan products not just the Option ARM beyond the glossary brochure. I do some due diligence on behalf of our residential clients. When I call the lender many can’t explain the loan program they are pitching to our residential clients. (And, no I am not quizzing the lender to explain an inverted yield curve to me.)
We need more education at the lender level and the agent level.
Michael,
They were mis-used and abused…just like stated income. That’s why they’re gone.
I’ve always thought that there are no bad mortgage programs–just bad mortgage advice or lack of advice (a borrower thinks they need that option ARM and will need seek out advice or care to understand the terms, for exampe).