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| Real Life Information... on Home Related Topics - Mortgage Information |
Conversion fees
Your agreement with the lender may include a clause that lets you convert the ARM
to a fixed-rate mortgage at designated times. When you convert, the new rate is The
interest rate or up-front fees may be somewhat higher for a convertible ARM. Also, a
convertible ARM may require a fee at the time of conversion.
Next: Adjustable Rate Mortgages Cont’d
Back to: Mortgage Overview
Your agreement with the lender may include a clause that lets you convert the ARM
to a fixed-rate mortgage at designated times. When you convert, the new rate is The
interest rate or up-front fees may be somewhat higher for a convertible ARM. Also, a
convertible ARM may require a fee at the time of conversion.
Next: Adjustable Rate Mortgages Cont’d
Back to: Mortgage Overview
Adjustable Rate Mortgages (ARMS)
would have to pay if you pay off the loan early by refinancing or selling your home,
and whether you would be able to convert your ARM to a fixed-rate mortgage.
Prepayment penalties
Some ARMs, including interest-only and payment-option ARMs, may require you to
the first 3 to 5 years of the loan). Some loans have hard prepayment penalties,
meaning that you will pay an extra fee or penalty if you pay off the loan during the
penalty period for any reason (because you refinance or sell your home, for
example). Other loans have soft prepayment penalties, meaning that you will pay an
extra fee or penalty only if you refinance the loan, but you will not pay a penalty if you
sell your home. Also, some loans may have prepayment penalties even if you make
only a partial prepayment.
and whether you would be able to convert your ARM to a fixed-rate mortgage.
Prepayment penalties
Some ARMs, including interest-only and payment-option ARMs, may require you to
the first 3 to 5 years of the loan). Some loans have hard prepayment penalties,
meaning that you will pay an extra fee or penalty if you pay off the loan during the
penalty period for any reason (because you refinance or sell your home, for
example). Other loans have soft prepayment penalties, meaning that you will pay an
extra fee or penalty only if you refinance the loan, but you will not pay a penalty if you
sell your home. Also, some loans may have prepayment penalties even if you make
only a partial prepayment.
Prepayment penalties can be several thousand dollars. For example, suppose you
have a 3/1 ARM with an initial rate of 6%. At the end of year 2 you decide to refinance
and pay off your original loan. At the time of refinancing, your balance is $194,936. If
your loan has a prepayment penalty of 6 months' interest on the remaining balance,
you would owe about $5,850.
have a 3/1 ARM with an initial rate of 6%. At the end of year 2 you decide to refinance
and pay off your original loan. At the time of refinancing, your balance is $194,936. If
your loan has a prepayment penalty of 6 months' interest on the remaining balance,
you would owe about $5,850.
If you get an ARM, you may decide later that you
don't want to risk any increases in the interest rate
and payment amount. When you are considering an
ARM, ask for information about any extra fees you
Sometimes there is a trade-off between having a prepayment penalty and having lower
origination fees or lower interest rates. The lender may be willing to reduce or
eliminate a prepayment penalty based on the amount you pay in loan fees or on the
interest rate in the loan contract.
origination fees or lower interest rates. The lender may be willing to reduce or
eliminate a prepayment penalty based on the amount you pay in loan fees or on the
interest rate in the loan contract.
If you have a hybrid ARM--such as a 2/28 or 3/27 ARM--be sure to compare the
prepayment penalty period with the ARM's first adjustment period. For example, if you
refinance when the first adjustment is made.
Most mortgages let you make additional principal payments with your monthly
payment. In most cases, this is not considered prepayment, and there usually is no
penalty for these extra amounts. Check with your lender to make sure there is no
penalty if you think you might want to make this type of additional principal prepayment.
prepayment penalty period with the ARM's first adjustment period. For example, if you
refinance when the first adjustment is made.
Most mortgages let you make additional principal payments with your monthly
payment. In most cases, this is not considered prepayment, and there usually is no
penalty for these extra amounts. Check with your lender to make sure there is no
penalty if you think you might want to make this type of additional principal prepayment.
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