i have an arm loan because the mortgage payments were cheaper--HELP!!!?

Question

its for 7 years, i put down 100K on a 500K condo in NYC, i pay the same amount every month, i heard after 7 years run out the payments will be so high I will not be able to afford it. what should I do?

Answer 1

There is another very important issue that you may have lurking in that stack of loan papers that you signed.

Some ARM loans are negatively amortizing. That means if your payment is less than the fully indexed interest rate, the unpaid part of the interest will be added to your principal balance.

Depending on the terms of your loan when the principal balance reaches 110%, 115% or 120% of your original lon balance the loan will reset and you will now have to pay the fully indexed rate and you may have to begin amortizing the loan at that point.

That means that your minimum monthly payment could double or more long before 7 years is up and when you least expect it.

The only way to determine if you have one of these loans is to read through all of the loan documents that you signed at the title company.

Do not rely on the words of the loan officer or the Mortgage Broker. Most loan officers and Mortgage Brokers are very poorly trained and they do not understand the terms of the adjustable rate loans themselves.

If you have trouble understanding your loan papers I recommend that you have an attorney who specializes in real estate law review them.
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Answer 2

Take a look at your loan documents. You should find the details of your loan.

1. There's probably a cap on how much the rate can increase, most likely 2% on the first increase. There's also probably a cap on the total the rate can increase, most likely 5% or 6%.

2. Look for a pre-payment penalty or privilege. It's the same thing, but privilege sounds less threatening. The penalty is usually for refinancing in the first 3 years of the term.

3. If you decide to refinance now, look for a loan with no closing costs to you...not rolled in (that means you finance the closing costs along with the mortgage and get to pay them for the next 30 years).

4. Don't panic until you know the facts.

Now the scolding part: didn't you read the documents before you signed? Didn't you know that Adjustable Rate Mortgage means the rate will ADJUST? You have to be responsible for your business transactions, because you're the one who'll get thumped if you don't. It's nobody else's responsibility to look out for you.

Answer 3

If your current rate is good for seven years, your payments will remain the same until the end of those seven years. There MAY be a prepayment penalty if you refinance the loan too quickly after taking it out originally. Once you have passed the prepayment penalty period, you can seek to refinance the loan with a more reasonable and conventional fixed rate mortgage.

When to do that ? The choice is yours. Right now fixed rates are quite attractive. If you elect to wait for another year, they could be higher or lower. It's a crap shoot.

Answer 4

Lock in your rate if it's good and switch to a fixed rate. You can refinance your rate without borrowing any money anytime in the future if the rates go down. Talk to your broker. Good luck!