Are you nervous or confused about what’s going to happen with your adjustable rate mortgage (ARM)? The Consumer Financial Protection Bureau set nine new laws in place this month. One of these laws is designed to help home owners who have an ARM so that they aren’t shocked when their rate goes up.
In the past, too many borrowers didn’t understand their loans and were taken by surprise when their monthly payments increased. They discovered they could no longer afford to live in their homes, and we all know what happened after that. The CFPB aims to prevent another mass foreclosure disaster.
The new law states that lenders must send you a notice between 210 and 240 days before your first interest rate adjustment. This notice should give you an estimate of what your new rate and payment will be.
In addition, the lender must send you a notice between 60 and 120 days before a payment change. This is different than the above, because if the interest rate hasn’t changed, your payment will not change. Or, if the interest rate changed slightly but your loan balance is lower, your payment might not change. With an ARM, your new payment is calculated using the interest rate and your current balance. This is why people with an ARM can see their payment go down as their balance gets paid off.
Currently, the law states lenders have to provide you when an annual notice that posts the new interest rate, but not the payment. If you want to know how your new payment in advance of receiving the bill, you have to go hunting for an amortization calculator–not very convenient.
I am pleased with this new law. But because there is a compliance period after a new law being enacted, lenders have until February 2014 to comply. Let’s hope most of them jump on board sooner.
In future posts, I will discuss additional new laws. Feel free to subscribe. I make posts on Mondays and occasionally on another day as well.