real estate finance - full book (500 pgs)

Section a indicates on which change date the borrower

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Unformatted text preview: eriod Notice – Notice is required whenever interest rate adjustments and corresponding payment adjustments can be made periodically under the loan agreement, even if they are not made because, for example, the index values have not changed or an interest rate cap has prevented any adjustments. 9-28 Licensing School for Appraisal, CPA, Contractors, Insurance, Real Estate, Notary, Nurse, Food Handlers, Tax and Securities 9: FIXED RATE MORTGAGE AND ALTERNATIVE MORTGAGE INSTRUMENTS Other Agency Disclosures – Information provided in accordance with variable rate subsequent disclosure regulations of other federal agencies may be substituted for the disclosures required by Regulation Z. CONVERTIBLE MORTGAGE There are times when prospective borrowers are torn between the initial low payments of the adjustable rate loan with the possibility of large increases in future payments, and a fixed rate loan with the initial higher, but certain, monthly payment. The ARM is low now but could increase to more than the present fixed rate loan. Borrowers ask themselves, Do I go adjustable or fixed? One answer may be a convertible rate loan. A convertible rate loan is a hybrid that typically starts as an adjustable rate loan but contains the option to switch to a fixed rate loan at some later date. Or it may be the reverse: the loan starts as a fixed rate and later can be switched to an ARM. For this privilege, borrowers usually pay slightly higher initial rates than for conventional (i.e., nonconvertible) ARMs. There are many varieties of convertible rate loans. A borrower needs to ask, When can I convert? How much will it cost? Do I get the prevailing fixed interest rate or a higher–than–market fixed rate? let's look at each, ARM to Fixed and Fixed to ARM, to answer some of these questions. ARM TO FIXED CONVERSION This type of ARM was developed to counteract many borrowers fears of the uncertainty of future increases in the interest rate on their mortgages. With this type of ARM,...
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