Are you one of the millions of consumers that took advantage of the record low mortgage rates by purchasing your dream home or refinancing your current home? If so…Congratulations! Low mortgage rates in the past 10 years assisted many consumers in managing their debt. However, the economy is changing and now is the time to ensure you maintain your financial momentum. It is important to periodically review the terms of your home loan – it just might save you thousands of dollars!
Purchasing a home is arguably one of the most emotional transactions a consumer can experience. Unfortunately, having a clear mind and remembering the details of the transaction is not par for the course. Granted, the vast majority of the time, real estate professionals (attorneys, realtors, mortgage brokers) complete their job with the highest level of ethical standards and guide their clients through the transaction. In today’s changing economy, it is still a wise decision for consumers to periodically review their closing documents to ensure they have the best available loan program.
When reviewing closing documents, it is important to understand the terms of the loan. There are basically two main types of mortgages - fixed rate mortgages and adjustable rate mortgages (ARMs). Fixed rate mortgages offer consumers a fixed interest rate yielding a fixed principle and interest payment for a fixed period of time. Conversely, ARMs typically offer consumers a lower rate of interest for a pre-determined amount of time. After the initial rate expires, there is a possibility of both a rate and monthly payment increase.
Having an ARM certainly offers many advantages; however, it is critical to know when the interest rate can adjust. The inner workings of an ARM contain four major components: the index rate, the margin, the interest rate and the adjustment period. Each of these components play an integral role and significantly impact the monthly payment. Understanding how these components affect the payment can possibly avoid unnecessary payment increases.
A typical closing package contains several important documents including the Mortgage, the Settlement Statement and the Note. The Note contains important details including the interest rate, how the interest is calculated, and if and when interest rate and payment adjustments could occur. Upon re-reviewing the Note, consumers can confirm whether the rate is fixed or if it is adjustable. If the rate is fixed, the principle and interest payment will not change during the life of the loan. It is important to compare this interest rate with that of the current economy to determine whether or not refinancing would make financial sense. Similarly, if the rate is adjustable, it is important to know not only the interest rate, but also review when adjustments can happen and how the interest rate will be affected. It is possible for interest rates to increase as much as two percent during the adjustment periods of an ARM. Increases such as these can increase monthly mortgage payments as much as hundreds of dollars per month.
The current economy is yielding higher interest rates than a few years ago. If you find that your current mortgage is an ARM, or a fixed rate mortgage with a high interest rate, it just might benefit you to contact a mortgage professional to discuss if refinancing is a viable option. It just might save you thousands of dollars!
Throughout his 15 year career, Steven Campanella has held various positions worked in the lending industry. Currently, he works as a Loan Consultant for Fresh Start Financial Services, Inc.
Fresh Start Financial Services is a licensed mortgage broker in the States of IA, IL and WI and originates loans also in CO, IN and MO. In 2003, the Illinois Association of Mortgage Brokers recognized the mortgage broker as the Subprime Mortgage Broker of the Year.
