Tuesday, March 27, 2007

Know your mortgage?

According to a recent article published by Bankrate, 34% of homeowners had no idea what sort of mortgage they were carrying. How is this possible? I find it very strange that about 1/3 of homeowners pay a mortgage, yet have no idea what sort of mortgage they have.

Does this mean that people are in over their head? Possibly, it definitely means that 1/3 of homeowners may have bought too much house. It also suggests they may be in very risky mortgage vehicles.

The article also discusses that those who have adjustable rate mortgages, almost 60% have no plan about what to do when their rate adjusts. That means they are just living in the now. I am an advocate for adjustable rate mortgages, I even understand getting an interest only mortgage. But I advocate such risk for people who are educated about these types of mortgages and are fully aware of the pros and cons.

I discussed this in November why i love my ARM. I realize that such risk not for everyone, nor should people enter into such mortgages who are not willing to take the risk. But I think it's worse to be so unknowledgable about your mortgage that you could have a fixed rate and not know it. These are probably the same people who haven't got a clue about the closing costs in buying a house or what their rates were.

The point? It doesn't matter so much what type of mortgage you have, so long as you know and understand the type of mortgage you have.

6 comments:

Anonymous said...

I'm not actually going to bother being embarassed that I don't actually remember the rate on the mortgage I'm in right now...that's simply due to the fact that I never intended to be in it for more than a year (I took the mortgage I could get in time for the closing, knowing it wasn't the one I wanted to stick with, and planning to refinance once I had a chance). But I could tell you the APR on the mortgage I'm about to refinance into down to three decimal places. And (unlike my current 2/1 ARM) it's an old-fashioned vanilla 30-year fixed. :)

Living Almost Large said...

I have an ARM so I don't think it's a bad mortgage to have. But I'm pretty sure that my DH has forgotten what the rate and what sort of mortgage we have. Except that it's an ARM.

I wonder if some people don't bother knowing their mortgage because their spouse handles most of the finances?

frugal zeitgeist said...

First of all, I'm glad to hear that there are people who have made an ARM work for them. I've been reading an awful lot of horror stories lately.

While predatory lenders certainly carry a certain amount of responsibility for the current foreclosure crisis, I think it's incumbent on borrowers to know what they're getting into. It's part of that whole being a grownup thing.

Living Almost Large said...

My best friend is a mortgage underwriter for one of the biggest companies out there. She also has an ARM, interest only actually. So do many people she works with.

She's paid commission based so it works out better. It really is based on your understanding of the loan and how it fits into your personal finance plan.

Ours is pretty vanilla 7/1, and there is risk, but the risk is somewhat mitigated by the fact that our cap is 9%. Not too high and the payments are on a smaller loan amount after 7 years. So the payments aren't ridiculously higher.

I've often considered would I, if I had a lot of disposable income perhaps tempt fate and try to pay off my mortgage by putting in on a 0% APR? Then being able to pay it off faster?

Anonymous said...

What type of mortgage you have really depends on the circumstances. Since it's usually such a long term, it's more of a cash flow issue to me. Just be smart about it and you'll be fine.

-limeade
http://fiscalmusings.blogspot.com

Living Almost Large said...

Yep like move before our ARM expires..That would be awesome and is our goal.