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Mortgage Note/Adjustable rates
What is a mortgage NOTE?
The mortgage NOTE is what discloses the terms of your loan. You will get a copy of this when you sign your paperwork. It will tell you what your interest rate is, whether your loan is fixed or adjustable, how long of a loan you are scheduled to have and all the other nuances that may pertain to your loan. The Note sometimes has riders with it which just means they are part of your note also.
How do I know whether or not my loan is adjustable?
On your mortgage NOTE it should say Adjustable rate note at the top of the page. If there is verbage about an index or margin within your mortgage Note or mortgage Note riders then you have an adjustable rate loan.
How do I know how much my rate will adjust to?
On the Note it will tell you what your index and margin are. This is usually on the second page of your mortgage note. Basically what you do is add these up and find out what your rate will be. Most mortgage Notes will have a set limit to how much your rate can increase on each adjustment. Most loans will adjust every 6 months after the first adjustment. The first adjustment is usually the largest. It can range anywhere from 1 to 3 percent . The verbage may be like this: the Note holder will calculate my new interest rate by adding 5.75% to the current index. The index which you will use to calculate your interest is defined in your mortgage Note. The index is often the 6 month libor. You add your margin and the current index at the time of adjustment and that will be your rate. If the margin and the index equal more than the maximum initial adjustment then your rate will only adjust up to to the maximum initial adjustment initially. Each adjustment period after that your rate will adjust according to the terms of your mortgage note.
An example:
Let's say you have a 2 year adjustable rate mortgage at 6.75% and your minimum rate is 6.75% at adjustment and maximum of 12.75%. Your margin defined in your note is 5.75% you add this to the current index lets say its 4.596% which is what it is in January of 2008. So your new interest rate will be 10.346% unless there are limitations. If your rate can only go up to 9.75% the first adjustment then it will go up to 9.75% the first adjustment and then keep adjusting up each adjustment there after until it reaches the index plus the margin. Consult with a mortgage professional for more details.
To see how this affects your monthly payment use the simple Comparison loan calculator on this site. You will use the terms of your mortgage note currently for one payment and the same terms but the new interest rate of what your new loan will be. The difference of these two loans will be how much more you will pay when your loan adjusts.
What can I do if I can't find my Mortgage Note?
The local Title company, or your current lender should have a copy of your Mortgage Note. Have them fax it to you if you can. If you are already working with a mortgage professional they should be able to do this for you.
How do I know if I have a pre payment penalty or not?
The pre payment penalty will be disclosed in your mortgage Note or within the riders of the note. If you are not sure after looking through your mortgage note if you have a pre payment penalty or not have a mortgage professional order the riders from your local title company or do it yourself.
What should I do if I am unsure that I am getting the same loan that I was told I would get at closing?
Review both your mortgage Note and the HUD or HUD-1 of your paperwork that you will sign at closing. If you are unsure make certain these forms are explained to you at the closing. The Note discloses the terms of your loan (rate, adjustable, prepay, fixed). The HUD discloses the fees associated with the loan.
What happens when my mortgage note is sold?
When your mortgage note or loan is being sold to a different company it really doesn't affect your loan at all. The only difference is that you have to make your payments somewhere else. The terms of your loan are not supposed to change. There are laws in place that will protect you from this and will give you the time needed to figure out who to send your payment to. Check your mail and make sure you know who your loan has been sold to. Once you know which company the sale was made to call that company and make sure your loan is ready to be serviced so you can make your payment.
Related Links:
Understanding Contracts and agreements