Your First Time Home Mortgage

This checklist will  help remind you of key points to consider when you review adjustable rate mortgages

If you decide to take out an adjustable rate mortgage, this checklist will also help you get the best from your mortgage, and help you bend it to suit your needs.

So please bookmark this page so you can easily return to this checklist. Do print it off and have it with you as you do your research on and offline.

Adjustable Rate Mortgages Checklist

1.   What will the monthly payments be for the first year of the mortgage?
2.   Does this include taxes, insurance, condo or home-owner’s association fees?
If not, what are the estimates for these amounts?
3.   When does the interest rate (and repayment)  change for the first time? What does it go up to?
IMPORTANT: If you are going ahead with a variable mortgage, mark this date and figure prominently in your diary, kitchen calendar, study calendar, all your digital calendars and planners.
4.   How frequently is the interest rate adjusted?
ACTION: Mark this in your diaries and planners.
5.   What index is used to set the interest rate? 
ACTION: Get used to looking over the index and following interest rates consistently
6.   What  margin is added to the index to get your final mortgage rate (index plus margin = mortgage rate)
7.   Are there caps?
8.   If ‘yes’ to caps:
    8a.  Where is  the cap calculated from – from the rate after the first adjustment, or from the initial (usually discounted) rate you would start the mortgage with?   
    8b.  What is the periodic (or annual) cap?
    8c.  What is the lifetime cap? (ie the maximum interest and payment, and the minimum)
    8d.  Is there also a cap on the first adjustment? What is it?
    8e.  What happens to interest that accumulates above the cap? Is it added to the balance? Is it carried over? And for how long does this continue? How is the loan then recalculated?
9.   What is the largest possible monthly repayment figure you could have, ever, with this mortgage?
(Yes, this is the same as the question above. But this is to clarify. Just to make doubly sure) 
10.  What is the prepayment penalty?
     10a.  How much is the penalty?
     10b.  When does it lift?  (Enter date in diaries and planners)
11.  Can you make additional payments to clear your mortgage early? Are there any penalties for doing this?
12.  Can you convert this mortgage into a fixed home loan? Are there any conditions? Penalties? Fees?

A Few Notes About The Checklist

• As well as the specific recommended actions in items 3 and 4 above, Make a note of  all the answers you get, on one sheet of paper (print off the checklist and write on it) and file it carefully.
• Most adjustable rate mortgages start with low introductory rates that are below market rates. So  expect your interest rate to rise at its first and possibly second adjustment.
• This is so important: Make sure that you can afford the payment when rates are at the highest cap mark before accepting the loan (8c and 9 above). This is the absolute key to making  adjustable rate mortgages work for you.
• When you consider the highest mortgage payment you could be making, think also about your near to mid future. Will you be taking on other significant debts, such as a car loan or school tuition?
• The point of marking that first adjustment so prominently is so that it doesn’t take you by surprise. And, so you can prepare for the adjustment. 
• When looking at the date of the first adjustment, do you still expect to be living here by then? If not, then the jump in interest rates will not be a significant obstacle. But please still do consider it because plans change, circumstances change, life throws us unexpected curves – whether we like it or not.
• Why watch rates?

  So you are financially agile - ready to make changes that you will benefit from.

  So you are aware of trends, gradual changes in interest rates. So you are much more likely to see what’s coming and able to plan for change. Maybe rearrange personal finances, maybe defer that big trip or new car – to weather the storm ahead or take advantage of an opportunity to save or invest.

  So you can cherry pick the ideal time to refinance your mortgage to a fixed interest mortgage. Rather than simply reacting to the looming deadline, and having to take whatever you can get (which may not be a good deal at all).

Technorati Tags: adjustable rate mortgages, first time home mortgage, variable mortgage

Tags: adjustable rate mortgages, first time home mortgage, variable mortgage