Banker helps owner avoid two payment hikes with refinance

Mortgage banker: Terry Hastings

Home value: $1,000,000

Property type: Refinance in New Haven County

Loan amount: $725,000

Loan terms: 4 percent 10/1 adjustable

Backstory: Hastings received a call from a very anxious homeowner. He had a first and second mortgage obtained years ago from two different banks and both payments were going up by a total of $850 a month. He needed some quick help.

Hastings asked the owner to send the mortgage statements from both banks so he could understand the types of loans and their consequences. Based upon that, he could make educated recommendations. The owner agreed and also sent over financials about his income.

Hastings called back and explained the situation the borrower was facing. First, the borrower had an adjustable rate mortgage and the low interest/fixed period was ending.

An adjustable rate mortgage, or ARM, has a fixed period of interest based on a 30-year payout. After the agreed-upon period expired the loan would adjust every year, and in the borrowers case, they were rising. This has happened to many borrowers who took out an ARM when rates were lower years back. Even though the “old” rate was appealing, the “new” rate presented a shock payment.

The second loan the borrower had was a line of credit for $200,000. A typical line of credit, or HELOC, allows you to pay only interest for the first ten years. After the 10-year period was up, the loan would convert to principle and interest payments on a 20-year loan.

To make matters even worse, the interest rate was based upon the prime rate which could rise several times this year alone. In short, the owner had two loans that were colliding at a bad time. His $850 per month increase was probably going to go even higher in the next two months.

Since the borrower had equity in his home, Hastings suggested merging both loans into a longer term ARM. ARMs can be fixed for as long as 15 years, but in the borrower’s situation, a 10-year ARM would present a lower rate and a extend beyond the amount of time he expected to be living in the house.

The borrower filled out an online application and Hastings submitted it to his bank. The bank, using a local appraiser to ensure a true value, approved the loans within 48 hours. The owner could once again breathe easier.