What you need to know when buying or refinancing a home.
It's important to understand if you are being given rates for a fixed rate vs adjustable rate mortgage when you're getting rate quotes to buy or refinance a home and what the means over the life of the mortgage.
In this video, I cover what a fixed rate and adjustable rate mortgage are, and how to make sure you know what you're getting what shopping for a mortgage to buy or refinance a home.
To help you learn more about the mortgage process, for a limited time I'm offering a FREE download of my book, Mortgage Peace here: https://bit.ly/2DPSo0t
Watch on YouTube: https://youtu.be/x3uDF9GjamM
Hey, welcome back. Today we're gonna talk about fixed interest rate loans. Did you know that not all loans have fixed interest rates? You could end up with an adjustable rate if you don't know what you're getting. So stay tuned to the end of this video to find out all the details.
I'm Stephanie Weeks, and this is your one stop shop for anything and everything, mortgage education. I drop new videos every Tuesday and Saturday.
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Luckily regulation has improved a lot over the last 17 years. So there's a lot more protections in place for customers, consumers, and that's a good thing. But you could still very well get something that you're not expecting if you don't pay attention. There have been people over the years and maybe some of you have heard some of the horror stories, but there've been people over the years who thought they had a rate that was fixed for the life of the loan. Just to find out that there was actually a period of time that the rate was fixed, and at some point the rate would actually adjust. And yes, it can typically adjust down or up depending upon the product that you get. But a lot of times there are people in the past that those rates jumped up. Now suddenly, they're not affording the home that they love and they didn't even know, they didn't even know there was gonna be such a big change in their monthly payment. This is something I wanna help you avoid by giving you step-by-step suggestions and things to look for to make sure that you get what you think that you're getting.
So the first big question of the day, what is an adjustable rate mortgage? An adjustable rate is a mortgage that will adjust at a certain period. There are a lot of different products out there, so I'm gonna just talk about maybe one or two simple ones. One example would be an adjustable rate mortgage where your rate is just make it up, let's say 4% interest and your rate is gonna be 4% interest for the first year. After that first year, your rate can adjust and it can adjust no more than 2%, which means if you started at four, that it could potentially adjust all the way up to a 6% interest rate. Can you imagine the change in the payment? I mean, it's a lot. This is not a little bitty jump in this particular example. And with that same product, it's possible that you could have an adjustment every two years or every year you could have an adjustment and there's caps on those adjustments, and there's a lifetime cap.
In the history when I saw adjustable rates, 'cause I really don't deal with them much for many years now. There are places or instances where it could make sense for someone. It's just very, very few and far between. But my point is, is that with the adjustable rate mortgages I've seen in the past, the rate cap, something crazy like 18%. And so again, it means that you're not fixed. So let's say that you get a car, okay? And your car is $20,000, a 3% interest rate for 60 months. Well, 60 months at 3%, it's not adjustable. We're talking about adjustable in this example. Another example of an adjustable may adjust every two years. So let's say that you start at 4%, then the first two years you stay at 4%, at that second year, the month, 24 month mark, the rate will adjust and it could have a cap of one, it could have a cap of two who knows, but let's say it had a cap of one. And that meant that your 4% could possibly jump to 5%. Again, making a huge change in your mortgage payments. So pay attention to what you're getting.
Make sure you don't see ARM, A-R-M, that's an abbreviation for adjustable rate mortgage. Make sure you don't see words that say adjust. Make sure you're looking for keywords, like fixed term, simple interest, things like that. And that's tip number one with regards to what in the world is an adjustable rate.
Tip number two, manager tell you where to look on your mortgage loan application to see if you are being offered an adjustable rate or a fixed rate. So on your loan application also known as a uniform residential loan application also known as a 1003 in the loan officer world. That is your application. And on the first page of that application at the top, it tells you your product type, let's just say conventional. It tells you your term, let's just say it's 30 years, and then it will say fixed rate, adjustable rate. So what you wanna look for again is that that box is checked for fixed rate. I actually had a customer a couple of months ago that I had approved them, sorry I had preapproved them, and then they went under contract and they went with another lender. Well, no big deal, I mean, it happens, right? I do my best, but I'm not perfect for everybody. It's kind of like a marriage type of thing, right? You've got a jive. So I was just, okay, thank you, no problem. Well, they ended up not buying that house, but then called me back when they were under contract for another house. And I said, I'm so glad to help you. Do you mind if I ask you, what did I do wrong the last time? Like, why did you jump ship basically? And they said, well, the interest rate with the other lender was so much lower, but we didn't realize until two weeks into that contract, it was an adjustable rate mortgage. They were not even quoting as a fixed while you were quoting as a fixed, so we have come back. So again, it's something that you can easily overlook.
Make sure you're looking at page one on that loan application, the boxes check that says fixed. What's another way that you can tell if you have a fixed interest rate? On the top of your loan estimate, you're going to see, it will again mention your loan type, such as conventional as one example. And then you're gonna see a box that would be checked that says fixed. So you wanna look at your loan estimate, the top of the page and make sure the box that says fixed is checked. That's another way that you can make sure that your mortgage loan does not have an adjustable interest rate.
This video hopefully has been short and sweet today, and I hope that it helps you guys out so much to not end up like my other customer recently that almost got an adjustable rate and thank goodness they caught that and were able to back out in time. What if they had gone to closing? I've heard of so many stories where the people actually went to closing. It just breaks my heart. So remember I said that sometimes in a very few instances, an adjustable rate might work. Let me give you some of those real quick. Number one, let's say that you relocate for work and you know that every two years, every two years, your job is gonna relocate you. Well, a three year might be a good option for you, if you get a big discount on the interest rate compared to the fixed. So maybe if you're gonna be transferring and moving every two years, then an ARM might work for you because you're gonna pay a lower interest rate during that two year period, and you're not keeping it for the longterm, so you don't share what's gonna happen at year three, four, five, whatever, right? Another examples, I have had some customers that were coming into large amounts of money. And with them coming into large amounts of money, like let's say there was a trust or something like that, and they knew that they were gonna get a big disbursement in three years. Well, then why not take an adjustable rate mortgage when you're guaranteed you're paying that mortgage off in three years. That would be another example.
Do me a favor in all caps, A-R-M, ARM and all caps in the comments. If you think that an adjustable rate mortgage might actually be good for your situation, I'm dropping the link down below in the comments section.
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