The Whole TRUTH

Since so many people refinance for the immediate gratification, they get stuck in mortgages that they wouldn't wish upon even their worst enemies! You think that's an exaggeration? Well, tell me if you agree:

A balloon mortgage...payments stay low for a period of time and come the last payment on your mortgage: $467,840...yep, because you just paid interest the whole time...so what is your option at that point? Either pay it off or get another mortgage...EVIL!!

You could also get stuck with an interest only loan...payments are low because ALL YOU ARE PAYING IS INTEREST! There's a more efficient way to just pay interest on your home and have someone else take care of the property for you...it's called renting!

ARM (Adjustable Rate Mortgage)...this usually comes with a fixed rate the first 3-5 years and them WAMO...it adjusts....do you think it normally adjusts to benefit you by lowering or to benefit the mortgage company by raising? Yep, you're starting to see this aren't you?

Pick a Payment....this type of mortgage can be deadly, because you'll get a bill and then the company puts three different totals that would be acceptable as an amount due. High Middle and Low....which one do you think most people choose? Yes, LOW...sometimes middle...the low payments actually amortize negatively and in 5 years or so you'll have to refinance or pay the back end amount or you lose your house!...ohhh but you're smart and will pay the middle right? Usually that's the interest only option, so there again, you're renting. SCARY!

These are just a few instances of mortgage types available...REMEMBER! Refinancing should be taken into account on a long term basis! Are you able to wrap up your debts and now use your freed up money to accelerate the whole thing? Will you refinance your 27 years left into a 15 year term? Those are the important questions.

TRUTH IN LENDING STATEMENT:

The four boxes above are titled:

ANNUAL PERCENTAGE RATE

FINANCE CHARGE

AMOUNT FINANCED

TOTAL OF PAYMENTS

in that order.

The Truth in Lending Statement is one of the most important sheets in your HUGE stack of papers you get as you are signing the acceptance of your loan. It's called "Truth" for a reason, they have to disclose the truth for you.

Look in those four boxes...Does the APR differ from your note rate? Usually does. The APR is the rate you'll pay after all fees are included into the loan. When you think your rate is 5.5% and then you see that your APR says 7.25% you've been hosed. Usually you don't want to see more than a percentage point higher on the APR...and that's almost pushing it. We'll talk about fees in another post.

What is the most important number on that sheet? THE TOTAL COST! You need to reduce that number no matter what it takes...the quicker you pay, the more you apply to it, the less interest dollars you'll pay. DO YOU YOUR HOMEWORK!

When you see the entire Truth in Lending document, in the second big box you'll be able to see what type of mortgage you own, and how the payments are applied. Check on this sheet whether your mortgage says fixed or if it has the "Variable" box checked. You'd be surprised how many people I've met with who would bet their first born child on the fact that their mortgage is fixed, and when we pull this baby out, we can really tell the TRUTH...hey...I'm just the messenger.

Pull you Truth in Lending document out today, review it, and then determine where you stand. Until you get smart about this stuff, you'll end up always shrugging your shoulders and wondering why you're broke. Don't let that end up being you!