Monday, December 24, 2007

How to figure out your ARM (Adjustable Rate Mortgage)

When we first start working with a client, We tell you that our company is different from others in the mortgage industry. We would always keep you up-to-date on the major changes in the market that could affect your financial goals or the goals of those close to you.

This is one of those times. In a recent New York Times article, the subprime lending collapse was faulted for “industry-wide problems” that affect more than just those borrowers with poor credit or subprime Adjustable Rate Mortgages (ARMs). Now, because of credit tightening, even borrowers with good credit and A-paper ARMs are expected to feel the effects of the changing market.

If you or someone you know has an ARM that is scheduled to reset anytime in the next 18 months, I urge you to share with them the following worksheet for estimating the new interest rate they will face once their ARM resets. Unfortunately, foreclosures are on the rise throughout the country, and many of these situations could've been avoided if the borrowers better understood how to read their loan documents and anticipate the fluctuating component of their home loan. Don't let this happen to you, your friends, or your loved ones. If you have any questions or trouble filling out the ARMs worksheet, please do not hesitate to call me. I'll be glad to sit down with you or your loved ones, and we can complete the worksheet together. Call me and set up a free consultation. My number is 866-900-2342 toll free. We are here to help.

Adjustable Rate Mortgage Worksheet Calculating Your Risk

Congress, many state legislatures, and the Federal Reserve are currently reviewing how ARM disclosures are presented to borrowers to ensure a better understanding of the mortgage process. Until then, it's up to you to protect yourself and your family. Don't get caught off guard. Pull out your ARM loan documents and use this worksheet to estimate what your payments will be when your ARM resets. (Note: If you have a Payment Option ARM, please call me right away. Payment Option ARMs have special features not covered in this worksheet.)

As you know, the initial interest rate on an ARM is generally locked for a predetermined period (typically between 12 months and 120 months). When this fixed-rate period of the ARM expires, the interest rate is then subject to change. Find your initial interest rate on your paperwork and write it down in the space provided. Now let's examine the initial interest rate cap, which is the highest rate your ARM can reach on its first adjustment. This interest rate cap typically ranges between 2 to 5 percentage points, depending on the terms of the note. The initial interest rate cap will be in effect for 6 to 12 months before it is subject to adjust or reset. (The cap on all subsequent adjustments to the interest rate should be either 1.00% or 2.00%.) If this is the first adjustment to your ARM, write in your initial interest rate cap in the space provided. Be careful not to confuse this with your life-time cap, which is the highest rate your loan can adjust to throughout the life of the loan. If you have a life-time cap on your ARM, write it in below.

Initial ARM Interest Rate Adjustment
__________________Initial Interest Rate
__________________Initial Interest Rate Cap
__________________Life-Time Cap

_______________Interest Rate Index + ______Margin =_________Adjusted Rate

(or Initial Rate Cap, whichever is less)

Subsequent ARM Interest Rate Adjustment(s)
____________________Current Adjusted Rate
__________________Adjustment Cap
__________________Life-Time Cap

___________Interest Rate Index + _______Margin
=_________Adjusted Rate

or (whichever is less)

___________Current Rate + ________ 1% or 2%, Per you loan terms =_____________Adjusted Rate
(must not exceed Life-Cap)

In addition to the initial interest rate cap, there are two other components that determine the interest rate when the ARM adjusts. The first component is what is known as the interest rate index. The index is the fluctuating component of the new interest rate and is based on, or tied to, any one of several indices tracked by the Wall Street Journal. These include, but are not limited to: the various London Interbank Offer Rates (LIBOR) and U.S. Treasuries, as well as the Prime Rate. Locate your interest rate index and write in the current rate above. Finally, we have what is known as the margin. The margin is the fixed number that, when added to the index, determines the interest rate the borrower will be charged upon adjustment. Locate your margin and write it in above. To calculate your adjusted rate, add the interest rate index to the margin and, if the rate is less than your initial interest rate cap, this is your new rate. Remember, your first adjusted rate cannot exceed your initial interest rate cap. If your adjusted rate is higher, then your initial cap rate will be your rate until your next adjustment. The cap on all subsequent adjustments to the interest rate should be either 1.00% or 2.00%, depending on the terms of your loan. In addition, your adjusted rate cannot exceed the life-time cap. Insert the appropriate figures into the table above. If your adjusted rate is less than your life-time cap, then this is your new rate. If your adjusted rate is higher than your life-cap, then your new rate is the life-cap rate. Below is a sample ARM with the first two adjustments calculated for you. Notice the change in the monthly mortgage payments! Don't let this happen to you or someone you love.

If you don't like what you see, or you're still having trouble working out the numbers, call me for a free consultation right away. There are a variety of fixed-rate products and government programs designed to help you get out of your ARM today.

Brian Skaar
VanDyk Mortgage
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The "No Cost Loan"

We have all seen Countrywide in the news for the past few months for a variety of reasons, most not good. One that I would like to speak about today is their heavy advertising of the "No Cost Loan". They have been under fire from both state regulators and the media for pushing these. Many innocent borrowers are swept into this loan thinking it is the cheapest way to get a loan. The borrower feels (and Countrywide says) that because of their huge size, Countrywide can offer no fee, no point, or no cost loans with no whammies. NOT TRUE! The Borrower will always pay for the fees somehow, either in closing or in the form of a higher interest rate. Every Lender, Broker, or Bank will incur fees to write a mortgage loan. Most of these fees are third party fees paid to outside companies. The points are part of the "cost of Money" or in laymans terms, your rate will always be effected by how many points you pay up front (regardless of whether included in the loan or paid out of pocket).

How do they do it? They increase your interest rate. Yes. Is that bad? Many times it is, but not necessarily. You may end up paying tens of thousands of extra interest. KNOW YOUR OPTIONS. One Size does not fit all.

Why do they do it? Higher rate loans are more lucrative for Countrywide to sell in the secondary Mortgage Paper Market. Period. They get more bang for their buck.

The No Cost, No Fee, No Point loan is a great loan for some people. It is not for everyone, and just like many loan programs, it isn't for every situation. You have to consider the benefits of a no cost loan with a higher rate vs a lower rate loan with some fees. More often than not, it pays to go with option 2, paying some fees, and getting a lower rate. It doesn't make sense if you do not plan on having the loan for atleast 24 months, you won't recoup the fees with your monthly interest/payment savings. If you have a smaller loan (under $175K), you should take a very close look at the options, as your recoup period may be longer.

A great compromise is to look at many fee/point/rate options to measure the best overall fit for your situation. The best way to find the optimal fit for your loan is to work with a professional you can truly trust and rely on for sound financial advice. One who will review the options with you, show you the differences between the choices and guide you to the lowest overall cost. Hire a Professional, get professional results.

If you would like to review your options with us, please feel free to contact us on the web at or toll free 866-900-2342.

Mortgage Forgiveness Act Signed into Law

Mortgage Forgiveness Act Signed into Law
Yesterday, President Bush signed H.R. 3648, The Mortgage Forgiveness Act of 2007, into law, sparing homeowners the tax burden associated with canceled mortgage debt.

Prior to this action, forgiven mortgage debt due to foreclosure, short sale, or deed in lieu of foreclosure, was considered taxable income. The new law, however, temporarily waives these taxes for debts forgiven (as high as 35%) from the beginning of 2007 to the end of 2009. The bill also extends the tax deduction for mortgage insurance premiums through 2014.

"This is going to make a happy holiday for many homeowners," President Bush said yesterday before signing the bill in to law. During the press conference he added the following:

"When you're worried about making your payments, higher taxes are the last thing you need to worry about. So this bill will create a three-year window for homeowners to refinance their mortgage and pay no taxes on any debt forgiveness that they receive. And it's a really good piece of legislation. The provision will increase the incentive for borrowers and lenders to work together to refinance loans – and it will allow American families to secure lower mortgage payments without facing higher taxes."

"There's more work to be done," Bush added, saying that Congress needs to pass legislation to strengthen Freddie Mac and Fannie Mae, to modernize FHA, and to allow the government to issue tax-exempt bonds for refinancing existing home loans.

H.R. 3648 Summary

Thursday, December 20, 2007

They are still here!

The commercial NO DOC loan is still here. and we can offer this up to 100% financing. No bull. Call today. 866-900-2342, ask for Brian.