25 Jun How Do I Compare Mortgages? The Fed Falls Short.
A mortgage is a product you purchase from a seller, typically a bank, a lender or a broker. Just like cars on the lot, there are different types and no two cost the same. To compare one type of mortgage with the other you need an accountant. The seller used one to determine how much to charge on a mortgage loan. But few borrowers invest in the due diligence of hiring an accountant to project the future costs of the loan. Instead, many rely on unsigned promises of the seller, with few resources to double check the numbers. Until now, or so it seems.
The nation’s central bank, the Federal Reserve Bank, unveiled its Mortgage Comparison Calculator. This web based tool lets you enter information about various loan products, i.e. fixed rate, adjustable rate, and interest only; and view a side by side comparison. It is a simple program that easily compares a 15 year fixed rate loan with a 30 year fixed. And to its credit, definitions abound. Unfortunately, the Fed falls short in providing information one needs to make a decision on whether an adjustable rate loan is affordable. The calculator will tell you a 2/28 ARM will adjust after the second year teaser rate expires, but it will only project one adjustment. Although that loan may adjust higher and higher every 6 months, the calculator will only show the loan payment after the first adjustment. It misleads you into thinking that 1 per cent $100 monthly increase is the only increase you will see during the life of the loan. This information may be more than a borrower receives from the seller, but it is hardly worth bantering the rollout of a supposed mortgage calculator.
Andy Miofsky, Esq.
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