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what type of mortgage they had. He was quoting an an article written by 
Posted by 
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42 Comments on Homeowner, How do you NOT know what type of Mortgage you have?
Hi Connie. It seems like there a hundred papers to sign for a mortgage. Its not like you can change anything. Just sign and own your home.
And unfortunately, a lot of people are the same way about all of their personal finances. If a lot of people sat down and added up their debt, it would scare them to death. We think if we can afford the monthly payment, we can afford the item.
Connie, this is a bit scary, but have had the same conversation with new homeowners and they sometimes remember the interest rate, but have no idea what type of loan.
Steven - I agree, they may not remember if it's FHA or Conventional or even their rate but fixed, adjustable, negatively amortizing, ballooning, or whatever... I don't get that.
Than - That's my point. You KNOW it's fixed. The rest doesn't matter.
Lenn - Well the Doctor's office analogy is head on. And don't we say that when it's serious, that someone should go to the Dr with you? Or at the least you write down what they say so you can review it later?
Richard - I couldn't agree more.
Paul - As long as you're really trying to help them to understand, that's all you can do.
This is truly scary as all the adjustable rate mortgages these days sound so tempting. 3-yr ajdustable, for example, in the 1% range. The scary part is if there isn't a good cap on the rate, it could easily "adjust" to an unaffordable level, creating a potential foreclosure situation.
The most common trait amongst smart buyers (of anything): Asking good questions.
I understand that there are many consumers who do not speak any finance language. I understand that there are still players out there in my business who would seek to take advantage of these individuals. I understand that in an effort to absolve the need for personal responsibility the agencies that regulate our industry have stacked more and more disclosures on top of the ones these same customers already don't comprehend. I get it all.
At the end of the day, however, if you're buying a home, you ought to be smart enough to make the effort to understand what you're doing. Nothing takes that fact off the table.
So many home buyers just zero in on "what is my monthly payment", or "what is my rate". Loan originators need to explain but borrowers need to ask questions. That is why I always offer to meet face to face to explain the mortgage.
Gene - I guess if you're seeing it first hand, you would know.
Rosemary - I find it shocking!
Jon - Behave! LOL
John - I think the part that I don't get is when they don't know that they have an adjustable rate and that their total payment could keep increasing.
Andrew - Geez, if only it weren't true.
Brian - You're right. At the time, it's the only thing that matters.
Melissa - That's exactly what I would think, but Gene, #11, says they still don't listen!
Tammie - My thoughts exactly!
Joan - that's what I thought when I first wrote this but I'm hearing a lot of other things in the comments.
Karen Anne - I guess I'm just used to working with Buyers who actually care about their mortgage.
Gary - That's certainly the best loan for most. I made the mistake of getting an ARM about 15 years ago because I planned to move in 2-3 years. I had no idea my husband had no intention of moving!
Christine - I'm guessing you're right.
Connie, perhaps it has something to do with the fact that 99% of my buyers are first-time buyers, and they are also "local" buyers who would not even think about the possibility of being transferred. Therefore, I cannot even think of ONE of them who is not on a 30 year fixed-rate mortgage.
And in the case of most of them, being first-time buyers... they are so excited about just being able to get INTO a house... and make it a "home"... that they just want to get financed... period. And since they are almost all with builders... they ended up with a thirty-year loan with zero origination and zero points. Right now that rate would be 3.375%... or so.
Also, I am guessing the market here in Fort Worth is very different from Brentwood. The new homes I mostly sell are built by "production" builders like DR Horton and Centex, they range in size from 1500 to 2600sf, and range in price from $120,000 to $175,000.
They are all "stick built"... single family detached homes built on slabs (no basements)... on building lots approximately 50x110 to 60x120.
Conrad - That's how my own first closing was. But I KNEW I had a fixed rate mortgage.
Jeanne - It really is scary the financial mess so many people are in and often don't even know it.
Joan - I know people don't remember some of the details but it's the ARM vs fixed that concerns me.
Olga - My point exactly!
Rob - I agree with you on ALL counts!
Shay - It's what I expect from lenders. Make sure they know if the rate can change and how that will affect their monthly payment.
Ellie - I totally agree. It's a huge investment and the consequence are life changing if you mess it up!
Karen Anne - It seems to me that a large percent of foreclosures are on first time home buyers. They are the people who need the most help understanding exactly why they need a certain type of loan. The ARMs are not always their best choice.
I mostly sell in Nashville and Franklin, the average home in Nashville is priced at $185,000 not too much different from there.
When working with sellers on a listing we have to do the cost sheet. As part of what we do we ask what kind of mortgage do they have. About half of them do not know. They just tell us it's a monthly payment of___. I also don't know how they do not know what kind of mortgage they have. We would think everyone would wnat/need to know that.
Connie, one of the most important requirements for first-time buyers is the stability that comes from knowing that they do not have to worry about an increasing interest rate. I cannot remember the last time I recommended that one of my first-time buyers financed their home purchase with an ARM. Bad choice.
As far as foreclosures on first-time buyers are concerned... the number or percentage of first-time buyers who have lost their homes to foreclosure here in my Fort Worth market is super-small.
My LAST short sale was three years ago... in 2010. Fort Worth has been fortunate that, because our market value has been so steady and dependable over the last fifteen years... there hasn't been a BUBBLE to burst. So... we have not really experienced anywhere near the harm that has befallen other markets in the country.
By the way... the last Short Sale I had that I mentioned in my comment was an older couple who bought a new home, and loaded it up with so darn many extras that it would not appraise. They paid $169,900 for a home that appraised for $154,900. The builder required them to come up with $15,000 in cash to pay for those extras outside of closing.
These poor folks hung themselves out to dry. Unfortunately, they bought their new home without a Realtor. If I had been their agent... that would NEVER have happened. The builders would never have gotten away with it.
I misunderstood the question. Of course they should know fixed vs variable.
Steve - I just don't understand that mentality of not knowing.
Karen Anne - I couldn't agree with you more. I am not a lender but I spend a lot of time talking to my first time home buyers on how important it is to stay within their means. That includes getting a fixed rate so they don't take the chance of getting in over their heads
Conrad- I agree.
From welders to secretaries to teachers to CEO's to even most Mortgage Loan Officers, I find very little financial knowledge in the marketplace....mortgage or otherwise.
That's why as Senior Mortgage Planner for Benchmark Home Loans in Middle Tennessee, I perform an annual home and mortgage review for FREE for my clients and do one for FREE for potential clients.
Managing a mortgage, per the Chicago Fed's white paper, saves on average TENS OF THOUSANDS OF DOLLARS over one's borrowing life.
We are committed to helping our clients save that money!