I thought house was a good thing

Something doesn't sound right. I never heard of an 2 year ARM before, to my knowledge there are 1/1, 3/1, 5/1 and 7/1 ARMs. If indeed you got switched from a 30yr to an ARM then your rate has been jacked by much more than 0.5% because the rate for a 3/1 ARM should be at least 1.25% less than the 30yr rate.

As for your 2nd mortgage, those are normally set to amortize over 30 years but due in 5, 10 or 15 years and obviously at this time a balloon payment will be due. Thus without knowing more about your situation it might well have been a clerical error on your 2nd that it wasn't recorded as such before.

And yes, you shouldn't have signed. Would have been better to ask the seller to delay closing for a week so you can sort stuff out with your lender. Usually the seller would go for it because it's a much greater hassle to find a new buyer.

 

It is your right to have a copy of each document that you signed. I sounds like the loan funded if you are moving in. I have never known of anyone burned by an arm loan. However with the lower interest rates a fix rate is better.

 

Nodding, that is EXACTLY what happened to me, in addition to a few other expensive and slimey add-on's at closing.

Please forgive these ignorant questions, but later in this thread a poster states he has never heard of a 2 year ARM. Is that, in fact, accurate?

I too have a 2 year ARM, I think. The interest rate is fixed for 2 years and then is adjusted, the first adjustment is in 2 years from the first payment, it thereafter adjusts every 6 months. That is a 2 year ARM, yes?

It cannot be adjusted downward and will never be lower than 10.5% or higher than 17.5%.

The new interest rate, at 2 years, is calculated by adding 7 points to the current index, thereafter (the 6 month adjustments) will never be more than 1 1/2 percent of what was paid for the previous 6 months.

What is the current index? Or a site that monitors the current index so I could figure what the changes will be?

Another poster then says that if the interest was changed from a 30-year fixed to an ARM at closing, it was raised more than the .5 the original poster stated.

How do you find out how much it was really raised and wouldn't the disclosures have to state that somewhere?

Someone also said that no one gets burned on ARM's -- I'm likely confused but am not understanding how this isn't a burning.

I am REALLY trying to get my brain around this. The first change date will be 2/2003.

I was screwed once in ignorance and it won't happen again. This loan, actually I have 2 with the same terms, one house is a rental, is my (our, Mr. Sassy's too) most embarassing and humbling learning through the school of hard knocks.

Could someone give an ARM 101 for the situation described?

I'd be curious to know as well if the same is true of the posters ARM?

Sassy

 

Sassy,

I was the one who never heard of an 2yr ARM, I hadn't found a reference to it on any internet mortgage lender's site yet. My guess is, that if your rate changes every 6 months, it's based on the 6-month LIBOR index rate or the 11th Dist. COFI. Your loan documents should tell you though! You can find the rates for these indexes on http://nt.mortgage101.com/partner-scripts/1196.asp. Search yahoo/google for COFI or LIBOR and you should find more sites that list the index rates.

What I meant with the statement that his rate was raised by more than 0.5% is this: An ARM is usually cheaper than a 30yr fixed, currently a 3yr ARM is about 1.25-1.375% cheaper. Therefore if he pays the originally agreed 30yr rate + 0.5% then he pays 0.5+1.25% over comparable ARM rates.

Look into your loan docs to find out which index your mortgage is based on and how high the added margin is (you said 7 point). Then lookup the current index rate and you'll be able to tell what your new rate will be.

Have you looked into refinancing or is your credit not good enough to get a better rate? 10.5% for an ARM is awfully high.

 

Parul,

You should have received a copy of all your loan docs when you signed them. Your lender is required to give you copies. If you have not received them, call him up and request them immediately.

It's highly unlikely that the loan hasn't funded if you're moving in. A seller will normally not permit the buyer to move in before funding.

 

Mephisto

Thank you!

Nodding, it is the 6 month libor.

That's why I'm here -- refinancing is the goal! and I want the scores to go with it. THIS time, I want to do it right.

The loans were made 2 years ago, definately predatory through New Century, I hope that is not who any of you work for, but I didn't know what that was at the time. My problem wasn't with them anyway, it was with the broker for not telling.

They were based on a 511 mid-score then and reports that my husband and I had never looked at before. We are both in the low to mid 600's -- I need about 620 for prime, yes?

I wish I knew of credit-net then!

I guess I have always had it in my head that ARM's adjust up OR down based on the indexes, not just up. Is that common or just for sub-prime loans?

Sassy

 

ok, I had it in my head that ARMs go up OR down, but mostly they go up, LOL, and are designed that way. The initial rate is kind of a teaser, yes?

If I am understanding correctly, the last 6-month libor is 1.815 to that I add the spread, which is 7 points = 8.815. So, if the rate were adjusted today, the rate would be about 8.8 to 8.9 percent. Am I getting it?

If the rate can't go down because of the contract wording, would it stay where it is now?

I do hope I calculated that right, even if it stays the same they wouldn't be getting the anticipated increase. That's makes me feel a little better in a sinister kind of way even! ;-)

There's a huge prepayment penalty with these loans, that is why I'm not pursuing refinancing until closer to the change date.

Thank you very much, you have helped me greatly.

Sassy

 

Sassy

A 2 year ARM is also called a 2/28 and the only place I have seen it used is in the sub-prime market.
It has the ability to go either up or down depending on what the index does. Your loan docs that you receive at closing are supposed to explain which index is used and what the margin that is added to the index to determine rate is. If your loan originated about 2 years ago, then there is a good chance that is will decrease when is it recalculated. ARMs will only go up or down by a maximum or 1 or 2% with each change and will have a lifetime cap as well.

Also, the 2 yr ARM is really designed to get a sub-prime borrower into a house and give them an opportunity to create a positive track record so that when they go to refinance they can get a better rate.

Hope this answers a few questions.


fla-tan

 

ARMs can go up or down, it all depends how the index fluctuates. It's not a teaser rate, just a rate that is based on a faster moving index. All mortgages are based one some index, yours on the LIBOR, regular 30 yr fixed on the 10 year bond.

In your case your new rate would be 8.875% (usually rounded up to the nexthighest 1/8th) except that your loan states that it can't go lower than 10.5%. If 10.5% was your initial rate then it will stay the same.

I don't know really at which rate you get best rates. I just financed our new house with scores of 688-715 (EQ low, TU high) and my wife had around 715-720. For those scores we got 4.875% on a 5/1 ARM which was about as low as possible.

 

Here is a tip for those of you planning to purchase a home: in the offer, make sure there is a clause that makes the sale contingent on you qualifying for a 30 year fixed loan with the interest rate not to exceed x%. That way, if rates suddenly jump, or if you get baited and switched, you have a way to back out of the deal (if you want to) that doesn't breach the contract.

 

wow, what great and helpful responses, thank you all!

Sassy

 

What are your credit scores?

 

We are closing on our loan in 12 days and suddenly HUD put up a red flag on our house and said we could not get one until 3 years and 1 month passed up from our last HUD house. that is still 6 months away. The seller has already moved out of their house for us and our 30 day notice is almost up. I have 2 young children. My mortgage guy said he has never heard of this in 18 years. What a pile of crap and still nobody knows what is going on.

 

Picantel,
If you can, try no to go FHA. You scores seem high enough (although it might be a downpayment thing?).

You still have options - you can go 80/15/5 or something like that.

I'd try other lenders...don't be discouraged!

 

Some mortgage guys have just been doing a bad job for 18 years.

That's a basic guideline, isn't anything new, and is reasonable.

"A borrower whose previous residence or other real property was foreclosed on or has given a deed-in-lieu of foreclosure within the previous three years is generally not eligible for an insured mortgage. However, if the foreclosure of the borrower's principal residence was the result of extenuating circumstances beyond the borrower's control and the borrower has since established good credit, an exception may be granted. Extenuating circumstances do not include the ability to sell a
house when transferring from one area to another."

-- HUD directive 4155.1, Chapter 2, Mortgage Credit Analysis

 

Regarding the question about types of junk fees on an escrow closing.

There are two types.
(a) duplicate fees. These are fees that are really the same service, just worded differently.
(b) Junk Fees. These are extras they tack on.

Examples of junk fees:
- Courier (ask for receipt, and demand to know why a courior was used).
- photocopy fees ($3 for a photocopy!)
- Online fees (what?)
- Anything that does not make sense. They can create some very original words that mean absolutely nothing. It's been a few years since I closed an escrow, so I don't remember all the words. I just remember being amazed at how creative they get.

Duplicate fees are often things like recording fees. You will often see them try to charge you twice for this.

As I said, they spring all these fees on you at closing, and threaten to hold up the closing if you don't pay them. They know that you have scheduled move-ins, etc, so they have you at gun point.

The best thing is to raise a fit at closing, then close under protest. Follow up with demands for receipts, proof of services, and then a lawsuit for a refund of the excess charges. You can also call you state consumer affairs dept to ask them for help.

 

How do you close under protest, please?

Do you sign your name with the phrase "under protest" with it?

Wouldn't that give the lender a reason to withdraw the offer?

Sassy