how does it work...?

Question

I bought a house 5 years ago and my first term was a fixed 5 year rate (ending soon). What happens then? I don't want to refinance... I just want to continue paying like before. Is the interest rate the only that may change? Does the bank send me something to renegotiate the mortgage? Not sure how this is done

Answer 1

This is how this all works. Your loan will adjust at the end of the 5th year. The adjustment will be every month, every 6 months or whatever was agreed upon when you got the loan. Each adjustment will have a cap meaning the interest rate will not go higher then a certain % everytime it adjust. THe loan will also have a life cap meaning, no matter how high interest rates go your interest rate will not be higher than whatever % was agreed upon.

YOU DO NOT need to refinance if you dont want to BUT it would be in your best financial interest to do it because interest rates are expected to keep on rising. Also at the end of your 5 yr term, the same bank that owns your mortage will call you to "negotiate" the mortgage which is nothing but a refiance. If you refinance through the same bank, you might save money on the closing costs and appraisal, etc, etc because they want your business and they rather you stay with them than leave. BUT they might not have the best interest rates or the best loan options available for you.

You can also go directly to another bank and get the refinance done there as well BUT you might not have the best interest rates or the best loan options availabe for you. You can go to a mortgage broker and you might not save money on closing cost, etc, etc but you will get more competitive rates than anybody else. The reason for this is that mortgage brokers do deals everyday with many lenders so the lenders want their business and to get that business they have to stay competitve therefore giving better rates to the mortgage brokers.

THIS goes without saying that not ALL mortgage brokers are angels. Some will offer you the stars and will end up taking you for a ride that you will not like. Dont be fooled when someone offers you "No closing cost" or "No points" that is just a marketing gimmic. Read my blog and you will find what I am talkig about. There is an article in the archives of November 2005 that talks about this issue.

Well hope you enjoy the reading and I hope it helps you in some way. Good luck

Answer 2

Hi there,

What i want to stress to you is that you are in a very typical mortgage loan, which thousands of other homeowners across america have as well.

You have an adjustable mortgage that is coming close to the end of the fixed period, and will begin to fluctuate based on the index.

Adjustable mortgages come in many forms, but all share one main thing. A fixed portion, and then a rising interest rate.

People get adjustable rates for many different reasons. For instance, if you are buying a home, but only plan to live there for 4-5 years, it may be smart to look at a 5 year adjustable rate mortgage. The rate during the initial fixed period will typically be lower then the rate on a fixed mortgage.

I know you said that you don't want to refinance..Is there a specific reason? I have been a mortgage banker for 10 years this september, and i hear that statement often. Usually the reason is due to a bad experience with a mortgage company in the past, or from hearing stories from someone who has.

One thing i always stress is that there are many mortgage companies out there. Some are inadequete, and some take alot of pride in helping people purchase a hoome, or restructure a current mortgage. For me at least, every loan i assist someone with offers a substantial benefit in one way or another.

It looks like what you need most is a professional opinion. Where you are currently at, i would definetely encourage you to at least if nothing else look at your options. As the saying goes, "an informened decision, is always a good decision."

The more you know about what you in particular qualify for, the easier it is to determine if it is right for you..

My name is Jason Fry, and I am a loan officer with Providential Bancorp, a nationwide mortgage lender. We are partnered with over 80 different investors that all have different options. I'd be happy to assist you in a refinance, or at least be able to let you know exactly what YOU QUALIFY FOR. You can then make a more informed, and educated decision whether it would be the right move for you.

Feel free to give me a call at 312-264-6448, or
you can email me at [e-mail].

Thank You,

Jason Fry
Mortgage Specialist
Providential Bancorp
Corporate headquarters, Chicago, IL
Serving 50 states

Answer 3

If there's no balloon clause, you'll most likely get a new payment book every 3 months because the rates are usually adjusted quarterly. You won't have any new paperwork to sign if this is a "standard" 5/25 loan but your payments are going to go up. They'll probably continue to go up every quarter till the prime interest rate stops climbing. So refinancing may not be as bad an option as you think. You can refinance into a fixed rate for a new 30-year term, or take out a 25-year note, or take out a 30-year note and pay it off early. Talk to your lender for the specifics because there are a lot of different loan clauses out there and you don't want to be waiting for a new coupon book to show up if your loan has some odd-ball clause about filing new paperwork in it. And if you do refinance, or even if you don't, take the time now to find out what will happen with your loan and payments later down the road--- your lender really should have explained all of this to you before they gave you the money!

Answer 4

Your loan is fixed for 5 years, which is coming to an end. If you don't want to refinance I suggest you pay as much of your principal off as possible.

I would only be able to guess that the interest rate you've been paying from 5 years ago is in the 4-6 range. You'll most likely be paying 6-8% now depending one what index you were given. This means that you may be paying double what you were and that it can go UP or down every quarter. You best bet is to find out what you will be paying and decide if a refi is best.

Answer 5

You need to check your paperwork. Your loan could be a balloon meaning you owe the balance at the end of the 5 years. More than likely, the FIXED part of the loan is now up for 'adjustment' in that it will likely go up. Now is a good time to go looking for a good 30 year fixed. You have 5 good years of payments on which to rely, see if you can get into a good loan now before the rate changes adversely.