Q: How will I know that the mortgage I’m getting is the one I was promised?
A: Borrowers are getting a new five-page form designed to make home loans easier to understand before they finalize the deal. The closing disclosure, as it’s called, lays out all of the critical terms of your loan and replaces the old, more confusing HUD-1 settlement statement. And while consumers usually didn’t get a chance to review the HUD-1 until they arrived at the loan closing, the new document must be presented at least three days prior to signing on the dotted line.
That should give borrowers plenty of time to compare the final terms they’re accepting — including such key elements as the interest rate and closing costs — to what they were promised when they applied for the mortgage.
By matching information on the closing disclosure to that on the loan estimate they received at the start of the process, consumers can quickly tell if anything has changed.
The borrower can demand an explanation, negotiate a better deal or cancel the loan before walking into a pressure-packed settlement meeting.
Q: Does this include the interest rate I’m being charged and monthly payments I’ll be making?
A: Absolutely. Look for the line that says “interest rate” on Page 1 under the loan terms tab.
If you paid to lock in the rate when you applied, and that lock hasn’t expired, the rate your lender promised should be the rate you see listed as your interest rate on your closing disclosure. If not, speak up now and demand the rate you were offered.
If you didn’t buy a rate lock (or you couldn’t close before it expired) and interest rates have risen while your application was being processed, you could end up paying more than you were originally offered.
The projected payments tab on Page 1 breaks down the three major parts of a loan payment and shows how they will change over time.
• Principal and interest: This is what you’re paying to reduce the amount you borrowed and cover the interest charges. You may see this cost increase in later years if you have an adjustable-rate loan.
A: Mortgage insurance: This coverage limits the lender’s losses if you don’t make your payments. Banks and mortgage companies usually require this protection when buyers put less than 20 percent down on a home. During the first seven years of the loan, you’ll see a monthly premium. After that, the charge is usually zeroed out because you’ll have enough equity in your home to drop the coverage.
A: Estimated escrow: Some lenders collect the money needed for recurring expenses (such things as property taxes, homeowners insurance and association fees) in advance and pay those bills on your behalf. To see which bills your lender escrows for, look at the other costs tab on Page 2 of the form.
Even though the “estimated escrow” line might not increase over time, you should fully expect this part of your monthly payment to rise as those premiums, taxes and fees go up.