Beware of the Hidden Prepayment Penalty!


Ask Carolyn Warren

?????????????????? FHA loans — the first-time home buyer loans with only 3.5% down payment — have a hidden prepayment penalty that could cost you hundreds of dollars when you sell or refinance.

If you used an FHA loan (3.5% down payment) when you bought your house, get out the Truth-in-Lending form. Near the bottom, you’ll find in bold Prepayment Penalty. Is the box checked for may have or for will not have a prepayment penalty? Regardless of which box is checked, if you close your loan on any day of the month except for the last day, you will pay a penalty.

Question: “Can they do that? My documents says I will not have a prepayment penalty!”

Answer: Yes they can, and I guarantee you that they will. If you pay off your mortgage in the middle of the month, FHA will charge you interest for the entire month, no…

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Adjustable-Rate Mortgage Basics


Michele Fritz

Residential Neighborhood

Adjustable-Rate Mortgage (ARM)

Adjustable-rate mortgages are those in which the interest rate is altered periodically during the life of the loan. For most ARMs, the rate is fixed initially, commonly for one, three or five years, and adjusts for the remaining years. ARMs require knowledge and attention on the part of the borrower.

Advantages

  • Monthly payments go down if interest rates fall
  • Falling interest rates reduce the overall cost of the loan
  • The starting rate charged by lenders is generally less than for FRMs, because the borrower assumes the risk of unfavorable changes in the money market

Disadvantages

  • Monthly payments may go up significantly, sometimes leading to default
  • Caps on the monthly amount to safeguard the borrower can result in payments lower than the amount due, so the outstanding balance increases every month
  • Making extra payments to principal does not shorten the term of the mortgage and is therefore less…

View original post 23 more words

Adjustable-Rate Mortgage Basics


Michele Fritz

Residential Neighborhood

Adjustable-Rate Mortgage (ARM)

Adjustable-rate mortgages are those in which the interest rate is altered periodically during the life of the loan. For most ARMs, the rate is fixed initially, commonly for one, three or five years, and adjusts for the remaining years. ARMs require knowledge and attention on the part of the borrower.

Advantages

  • Monthly payments go down if interest rates fall
  • Falling interest rates reduce the overall cost of the loan
  • The starting rate charged by lenders is generally less than for FRMs, because the borrower assumes the risk of unfavorable changes in the money market

Disadvantages

  • Monthly payments may go up significantly, sometimes leading to default
  • Caps on the monthly amount to safeguard the borrower can result in payments lower than the amount due, so the outstanding balance increases every month
  • Making extra payments to principal does not shorten the term of the mortgage and is therefore less…

View original post 23 more words