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jpenn187 · Joined: 16 Nov 2009 Posts: 3 2.04 Dollars($)

I bought a unit in 2005 with a 5 Year ARM interest-only mortgage with a rate of 5.25%. I was paying just the interest this entire time and it just reset this month. For some reason, it auto-reset to a 30 year JUMBO loan and I am paying a higher rate.
My questions are:
Why did it reset to a jumbo loan when the mortgage amount is only $209,500?
Does anyone have any advice or options for me to refi?

I assume a lot has to do the current property value. It is down around 18%.

gmakerley · Posted: Mon Nov 16, 2009 9:26 pm Post subject:

too many contradictions here:

if you got a 5-year loan in 2005, why did it reset in 2009 (9-5=4)? did you check your loan documents to see what kind of loan you actually received? to see the terms as they relate to changes in rate?

my advice is to check your documents as they'll contain many of the answers you seek. you can also speak with your lender's office to find out the derivation of the new rate. maybe they can tell you what kind of loan you have, too.

jpenn187 · Joined: 16 Nov 2009 Posts: 3 2.04 Dollars($)

Thanks George. After reviewing my account it looks like this jump has something to do with an increase in Escrow amount. I am not sure what that is about.
It was originally a 30 yr Conv Jumbo Arm with an interest rate of 5.375%.
Is there anyway this was a 5 year arm? It says Contractual Remaining Term: 26 years, 1 Month.
I don't understand any of this. I just know I was paying the same since November, 2005 and now November, 2009, I am suddenly paying $200 more.

jenkin7 · Posted: Tue Nov 17, 2009 12:11 am Post subject:

Hi jpenn,

If it was a 5 year ARM, the interest rate should have adjusted in 2010, not in 2009. It seems that the $200 increase in your monthly payments is due to a rise in your escrow amount. The escrow account is maintained to make the property taxes and insurance payments. It seems the property taxes or your insurance payments have increased, which is why you need to make the extra payment every month. Check with your lender what exactly has caused this increase in your monthly payments. Also check if the mortgage is indeed a 5 year ARM or a 4 year ARM.

eric1 · Posted: Tue Nov 17, 2009 6:21 am Post subject:

The escrow balance makes more sense. What happens is that your taxes increase and the bank fails to increase your mortgage payment right away to compensate for that. So, they begin to eat into your escrows to cover the tax payments. Eventually, they realize there is a low or negative balance and they increase your payment to cover the new tax costs PLUS they add more $$ to build up the escrow balance again.

jpenn187 · Joined: 16 Nov 2009 Posts: 3 2.04 Dollars($)

First, thank you all for your expertise. I called BofA today to find out what the story was with my mortgage. It turns out that in 2005 I got a 5-year Pay Option loan at 5.375%. It expires September 2010. You were all right that the increase does have to do with taxes and escrow.
So do any of you know about this pay-option loan? I never heard of it (even though it is probably popular)?
Next year when it expires, am I screwed?

Thanks

gmakerley · Posted: Tue Nov 17, 2009 9:02 pm Post subject:

i never had direct involvement with pay-option, but this is how i know it. you are given the option each month to pay 1) interest only; 2) a regular amortizing payment; 3) an option that is less than either of the first two, if i remember correctly.

with #3, you run the risk of having your balance increase continually as you fail to make sufficient interest payments to cover that, and interest is added to your balance. with #2, you are smart and make regular payments of principal and interest, thereby paying down your balance every month; and with #1, you pay only interest, which means your principal balance remains the same throughout.

these were designed to give discerning (!) borrowers a choice on how to make payments, with the notion that they'd know what they were getting into. and of course they were a sales device, bringing in larger loans because people could afford option 3 and therefore buy a larger home calling for a larger mortgage requirement.

nasty loans, for the most part, unless an astute borrower knows how to handle one.

jveenstra · Posted: Wed Nov 18, 2009 11:05 am Post subject: Pay Option ARM

Better check what you have now before September 2010. If you can refinance now while rates are low, do it.

We can not tell your terms. Is the interest you are paying now enough to cover the interest due each month? or, is the interest you pay what they bill you and you really owe more interest--which is added each month to your balance?

What balance did your mortgage start at and what balance is it now?

If your interest rate changed, that may be because the option ARM allows you to pay at your starting interest rate but the interest rate can change monthly and what you pay could be more or less than what you owe.

You may actually have a jumbo mortgage product even though the loan amount is not a jumbo loan amount by Agency guidelines. Some loans were/are designated jumbo even though the loan amount is below normal conforming loan amounts.

On the fifth anniversary, I guess that is September, 2010, your monthly payment will adjust to the rate at that time at the balance at that time amortized over 25 years. Depending on exactly what is happening, that could be a huge jump in your monthly payment.

I suggest you find out now what you have and where you stand. You need to show someone your NOTE and recent monthly mortgage statement. It is the only way someone can explain what you have. There are too many variables with an option ARM for any of us to list all the possibiliies.

Guest

My husband and i got an Interest only loan fully expecting to pay it off in a few months on a second home. The market, well you nkow We have paid down the note to $105,000, originally $405,000
Never late, paid the interested only.
Coming due the end of the year and with the passing of my husband i am faced with this note
What can you help me with . I have the money to pay it but am begining to think I should continue to just make the new rate and pay it off with inheritance in a few years It could be a good write off
Your suggestions would be appreciated Is it really wise to approach the bank these days without outside advice????

jveenstra · Posted: Wed Mar 09, 2011 2:13 pm Post subject: Second Home

Not exactly sure of the situation.

You indicate "Never late, paid the interest only"
If the balance started at $405,000 and is now $105,000, you paid more than just interest. You paid $300,000 in principal.

"Coming due end of year......"
What does that mean?
Does it mean at the end of the year, the "INTEREST ONLY" period will end? When the interest only period ends, it simply changes to a requirement that you pay interest and interest and that would be based on a balance of $105,000.
I am guessing that you do not mean a balloon payment is due at year end.

You can either pay off now or later because you have the money to do that now and will inherit more money later and could do it then also.

Exactly what question do you want to ask the bank??? I do not see where you need to ask them anything. You just need to decide if you want to pay in full now or later.
I would pay off over time. Just make your monthly payments. Why give the bank a large lump sum now. For that matter, why do it later either.

If your balance now is $105,000 now, keep the large sum of money in your own account. Just make the required monthly payments.

I do not think anything you do is a good write off. The mortgage balance is small. There is somewhat of a write off, but, not anything to help you decide wheteher or not to pay in full now or later.

I may have asked more questions than you asked.

Guest

This is so unreal to me since two major things happened We never intended to have it more than the closing of a 1031 but and i never expected my husband to die so suddenly So , this being an area I did not get involved in with respect to the mortgage I am nervous about what i'm looking at
Your right I meant I never paid anything additional into the principal on monthly payments We were able to pay down the note to $105,000 We had 4 properties and were selling them all to buy one. Never got the last one sold
SO...It'd due in 5 yrs I guess The first adjustable rate change is this November. i'm thinking should i pay it down or have to deal with this interest being adjusted Can i find out now what the payment will be The rate? Lets face it It's a terrible Interest Only Adjustable Rate Note
We have. I agree that I think I should keep the capital and pay this at the new rate I guess not knowing what it will be and it says the high would be as much as 11.50% and they do 2 1/2 % to the current Index
I sure would like to know what that might be
Again your thoughts?

jveenstra · Posted: Wed Mar 09, 2011 3:47 pm Post subject: ARM

If they add 2.5 to the current index, that means the Margin is 2.25.

Not sure what index you have, but most indices are rather low.

I do not know what rate you are at now. You may find that when the rate adjusts, the new rate may actually be lower than the rate you have now and your required payment would drop.

The new rate will be the index plus 2.5 and the value of the index will be the value 45 days before November 1st, so, the value of the index about September 15th. That index value then may be higher or lower than the index value today.

If you have the NOTE someplace, that will tell you the index.
It may be easier just to call the 800 number at the lender and just ask them what is the name of the INDEX and you may even ask them what the value is today, although, once we know the name of the index, we can tell you the value today.

While the interst rate may CAP at 11% or more, your rate will not go that high any time soon.

Guest

Wow First I have to Thank you for your quick response I wish I could have everyone respond like that in life

I currently am paying 6.5 % on the interest
The index in the note says it will be calculated

I also see now that this is a 10 yr interest only period (I thinkI know what that means) It says the LIBOR, in the section of the index

Your info was incouraging to think It may not be more and could even be a little less
Wow to us ignorants, this is over the top I have paper work and inch thick
Dead sea scrolls
Thanks , I hope that I gave you anything to maybe just give me a ball park here

jveenstra · Posted: Wed Mar 09, 2011 4:44 pm Post subject: Rate

I do not always answer this fast. Just happen to be in the office and on the computer.

The One Year LIBOR Index Rate today is 0.79.
If you add 2.5 to that, the new rate would be 3.250% or 3.375%.

If today were September, 2011, then November 1st your new rate would be 3.25% or 3.375% for the next 12 months.
So, your rate and required payment would drop because the balance is lower at $105,000 and the rate would be lower than 6.500%.

Actually, if your present payment required is interest only and not principal and interest, the new payment in November will require principal and interest and that would be higher than an interest only required payment.

If ten years interest only is up November, then there are 240 months left in the life of a 30 year mortgage.
The new required principal and interest payment on a balance of $105,000 (may be lower by September) for 20 years at 3.375% would be $602.

You r payment required starting November, 2011 should be around $602 not counting taxes and insurance if they are included in the mortgage payment.

Guest

You have helped me in the few messages here than I could tell you By asking you these questions and reviewing my Loan Doc's I really focused on something i was very skiddish about facing I can't thank you enough for helping me

The loan was created in 2006 so there are 5 more years of the 10 year interest only part November is the first adjustment rate date

So just to repeat what you stated your saying the payment would be $602. and thats including principal and interest? or Just the interested I want to make sure I understand you

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ARM Adjusted. What happened?