A mortgage is one of the most important contracts you are likely to ever sign. That is why before you put your signature and initials on any part of the document, you should be completely aware of what the agreement entails.
Frequently, homebuyers will go into their realtor or lawyer’s office for the closing and be handed a stack of documents, each page in need of multiple initials and signatures. Signing alone can take upwards of an hour, but to actually read what is being signed would take exponentially longer. There’s a tendency to feel pressured into rushing this process, as the third parties appear to be just waiting impatiently for you to put pen to paper as quickly as possible.
Because of the sense of urgency, many people find themselves shackled to contractual agreements they do not fully understand. Worse, some items or addendums may be signed without even registering on the signer’s radar, particularly if they find upon closer inspection that the signed, final closing documents do not correspond with their expectations coming to the table.
Financial writer and Quizzle contributor Marco Maceri stated, “With the stakes so high – with nothing less than the life you want to live on the line – it is common to feel a little overwhelmed by it all. As with any major endeavor, information is power.”
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It is necessary to change this pattern of behavior. With your signature, whether you have taken the time to process the document’s specifics or not, you are committing to a legal, contractual agreement in all its detailed glory. It is your responsibility to stave off the rushing pressure and be fully aware of what you are agreeing to.
Below are just five sections on mortgages that frequently garner less than stellar attention and can catch homebuyers painfully off guard.
Adjustable Rate Mortgages: Be aware of whether you are signing a fixed-rate or adjustable-rate mortgage. It’s a common occurrence to sign on an adjustable rate mortgage, unaware of how much that rate can actually change. This can lead to a rate change resulting in an increase beyond your means. You could quite literally find yourself unable to pay your loan after five years of perfect payments.
Forbes contributor, Mark Greene, commented, “Mortgage interest rates trade every day, they go up, they go down, sometimes they only move sideways but they change. It is the way it is and it is the way it will be, so understanding how that impacts your personal mortgage repayment future, will help you digest whatever the financial markets throw at you.”
If you see this, make sure you understand the potential consequences of having an adjustable rate. Think long term and prepare to pay an additional 3 percent incrementally. If the adjustment rate is above 3 percent, negotiate to have it decreased.
Pre-Payment Penalties: Look for provisions that garner a fee or penalty for paying off your mortgage before the term of the loan is complete. Many people assume mortgages are akin to typical car loans and additional money can be paid regularly toward the principal amount of the loan without incident, more quickly paying off the amount and side stepping additional interest.
This type of fee/penalty can negate any smart-loan handling sense you thought you had by paying off early.
If you see this and were unaware of it before coming to the signing, ask for it to be removed from the document. It’s worth the extra time to process the closing. Many people are aware of the default, late or nonpayment penalties on their mortgage, but it is just as important to be aware of penalties for being an ambitiously responsible credit holder who wishes to pay off the debt sooner rather than later.
Closing Statement Vs. Good Faith Estimate: Before coming to the closing table, you should be given a closing statement. Compare these details with the good faith estimate document you received after your offer. Make sure both documents reflect the same items and fees. Pay special attention to mortgage origination fees, credit report fees, and appraisal fees.
If you see disparities between the documents, adamantly request the closing statement reflect what was written in the good faith estimate.
Sale Of Loan: Understand that, while infrequent, it is possible your lender will sell your loan in a secondary market. Be aware of the possibility and look for a clause stating if your mortgage is eligible to be sold to another lender.
If your mortgage has this clause, investigate further. Your lender may be aware of possible buyers for your loan down the road. It is important to understand that while lenders are third parties within the contract between buyer and seller, they are parties at the table nonetheless – their involvement is an important consideration you as a buyer must make.
Look At The Mortgage Rate, Term And Bottom Line: Above all, before going into a contractual agreement for a loan of possibly hundreds of thousands of dollars, understand exactly how much debt you are taking on. Seriously evaluate your financial situation and look at where you hope to be for the length of the loan. Consider all implications. Be acutely aware and honest with yourself about what that debt load is liable to influence going forward.
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If you are at all surprised by the mortgage numbers on the closing documents, respectfully, but ardently, request a recess from the closing appointment. Do not feel pressured to sign anything that catches you off guard. It is your financial future and your responsibility.
Mortgages are one of the largest commitments any adult can engage in. Mortgage terms last longer than just about any other loan agreement you are likely to encounter. It is essential to understand the seriousness of the situation and what it entails.
Make sure you are in control over your financial future, and not the other way around. It is easy to feel pressured into signing large documents, particularly if they are not presented in a way that warrants additional time and attention. Do not be pressured by others’ attitudes toward your financial obligations. Always stay in control over your own financial future.