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ARM Adjustment Disclosure Requirements - Do I have rights?

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Anonymous
Not applicable

ARM Adjustment Disclosure Requirements - Do I have rights?

My ARM adjusts next month.  I knew this was coming and was notified by my mortgage provider -- but their notification was inaccurate.  I have spoken to the mortgage provider on the phones several times in an attempt to clarify this matter, but have not rcvd final written clarification.  Do i have any rights to prevent/delay (temporarily) the rate adjustment?
 
Their notification(s) erroneouslly say that after the adjustment the loan is still "interest only" and therefore when they detail the new monthly payment, the entire amount is on the "interest" line -- $0 on the "principal" line.  This is inccorect -- I/O period ends when the rate adjusts -- and the lender has basically admitted that over the phone (but I'm not entirely confident that the person i've been dealing with understands what I am trying to explain) and have asked to see that in writing.  I've double and triple-checked the original loan docs from closing and crunched the numbers in an amortization calculator, and am 100% confident that the new monthly should inlcude ~$450 in principal (almost half of the increase in the monthly payment).
 
We're in the process of deciding to re-fi or keep the current (adjusted) note.  We will likely sell and buy a new home in the next 6-12 months, so there's a good chance the costs associated with a re-fi will not make it worth it.  We can afford the new monthly, but it is impossible to make an accurate cost/benefit analysis between the new montly payment or re-fi if it is unclear if the new payment amount includes any pay-down of principal or if it is all interest -- there's a big difference between a $1000 increase ($0 principal) and a $1000 increase, $450 of which is principal.
 
I've probably cut it too close to get a re-fi completed before the rate adjusts (8/1, new monthly due 9/1) -- in part b/c i've been waiting for clarification from mortage company.  I'm assuming that if we close on a re-fi on 8/15, we will still be liable for the higher interest rate for the period 8/1-8/15.
 
Can i force my lender to delay the rate increase until they have accurately notified me of the rate/payment change?
 
Any advice and insigth would be much appreciated.  Thanks.
Message 1 of 4
3 REPLIES 3
Lel
Moderator Emeritus

Re: ARM Adjustment Disclosure Requirements - Do I have rights?

It seems like the question here is whether the new payment amount that your lender has quoted only covers interest, or principal + interest. From your message, it appears that you have determined that the new monthly payment should cover both. If your payment were interest-only, then your monthly payment would be (principal balance) x (new interest rate) / (12 months).

The new loan documents can't actually state how much of each payment will go to interest and how much will go to principal, because this changes each month. You probably saw this phenomenon when you used the amortization calculators.

Even though your new documents indicate that all of your new payment will go to interest, when you actually make the payment, the accrued interest during the billing cycle will be paid first, and anything left over will automatically go to pay down the principal.

I don't know if this error in documentation is sufficient grounds to delay your rate adjustment, but one of the mortgage pros here will have more insight into this.

With regards to refinancing, the closing costs might be hard to recover if you are really going to sell in the near future, but if your interest rate is going to reset to a very high number, then it might actually be worth it. What is your new interest rate going to be, and what is your current LTV?
Message 2 of 4
ShanetheMortgageMan
Super Contributor

Re: ARM Adjustment Disclosure Requirements - Do I have rights?

I'm not an attorney but I don't believe because they haven't accurately told you what your payment will adjust to that would be basis for delaying the rate increase.  A friend of mine just got his ARM adjustment and had me review it, it said that based on current rates his new rate/payment would be estimated at a particular amount.. but also disclaimed that if rates do change between when the letter was sent and the LIBOR index on the day that his rate adjustment would go into effect then the information in the letter will not be entirely accurate.  Bottom line is there isn't enough time for you to retain the proper legal council and force the lender to delay the rate adjustment in the next 2 weeks.  What your loan documents say is what the new rate adjustment should be based upon, whether it's principal + interest or just interest only, those loan documents will spell it out.  If the mortgage servicing company is telling you something that contradicts the loan documents you signed at closing I'd ask to get a supervisor on the phone and do not deal with the customer service peons who pick up the phone.
 
Lel asked some important questions when it comes to determining if refinance would be beneficial or not.  Another good question would be what your credit score is.
Free Mortgage Advice & Pre-Approvals (FHA, VA, USDA, Fannie, Freddie, Non-Prime, Construction, Renovation/Rehab, Commercial) since 2002
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Message 3 of 4
Anonymous
Not applicable

Re: ARM Adjustment Disclosure Requirements - Do I have rights?

Thank you for the responses.  As y'all point out, it's doubtful that it will pencil to out to make it worthwhile to re-fi, so figured if I can use their computer glitch to save myself a month or two of the higher rate it was worth a shot...
 
I knew full well the risk associated with an ARM when we originally purchased -- and the lower rate over 3 years plus the higher rate until we sell/buy i think is still a better deal than a 30 year fixed at purchase -- but can definitely see how people could get tripped up by this process.  I am somewhat literate on financial matters but clarity and plain english are not in the mortgage industry's DNA...
Message 4 of 4
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