Mortgage Commitment – is this Reasonable or Completely Wrong?

[Nir]

Hi All,

I wanted to ask whether the following mortgage commitment I received from a small bank is reasonable or completely wrong(?)

The mortgage commitment includes the following statement: "the loan balance upon maturity (5 years), with ALL INTEREST, charges and accessories, shall become due and payable on that date…. the mortgage will become due and payable in 60 months at which time the borrower, if all payments are made on the due date and any prepayment privilege is not used, will owe $155,000" (I rounded).

However, the loan amount (principal) is only $120,000! My question is is this normal that after 5 years the bank has calculated I will owe $155,000??

I understand how they calculated it – they added the present value of all future interest payments (30 years) to the amount I will owe. However, is this standard meaning most banks do it this way or is it completely wrong to the extent I should not take their loan?

What happens after 5 years if I want to continue with a different bank??

Lastly, in another section in the contract they mentioned" the mortgage is not renewable (after 5 years) on the same terms as described above (referring to interest and amortization). Therefore, on one hand if I take their mortgage it will never make sense to switch to a different bank after the 5 years term due to a HUGE penalty - will owe $155K where initial loan is only $120K. On the other hand if I stay with them they can now (after 5 years) charge any interest they want as they mentioned above.

I guess the bottom line is if this is a common/standard practice and most banks do it this way I will take the mortgage however if this is completely wrong/unreasonable I will not. Is it even LEGAL for a bank to charge future interest (25 years interest) at the end of a term (5 years)? Don`t they have to follow certain rules/regulations too?

I would appreciate any advice on the topic.

THANKS & REGARDS,
Neil

 

[bigbabba]

I don`t think that they are charging you future interest..they can`t, even if it was legal (which I doubt very much) they dont even know what the interest rate could be from year to year never mind for the next 30 years. Why don`t you call them? people on here will just speculate like I did, we don`t know the whole story.

what was th initial principal? is this the first 5 years? they can calculate what the interest amount will be if you locked in for 5 years and maybe that is what that was, explaining to you what you would have paid in P+I. As for rates being raised, they can raise the rate but then you should try to refinance somewhere else. There is only penalty if you break the term, once maturity sets in you can lock in again with them or carry the mortgage somewhere else. My suggestion is to call and find out what they are talking about if you want a quick and prescise answer.

 

[Nir]

Thanks I will do that. However it is through a mortgage broker. The issue is he does not respond and if I call the bank directly he might "explode". I already had to call the bank directly once due to a discrepancy he could not resolve and it upset him so much I couldn`t believe it. Should I call a bank representative in this case or the underwriter himself IF the mortgage broker does not respond/resolve the issue himself? Is this legitimate or should I just do everything through him? I already signed that document by the way but the discrepancy is still there. THANKS.

 

[Nir]

Hi All,

OK I found out my mistake I should not have worried about it so much.

I read the comment again and amount 155K is actually correct! If I understand this correctly they show the amount I will owe IF I don`t make ANY payment during the 60 months period. It`s a little surprising they calculate it this way because obviously I will pay monthly, not just at the end of the term

"The mortgage will become due and payable in 60 months, at which time the borrower, if ALL payments are made on the DUE date (in 60 months) and any prepayment privilege is not used, will owe $155,000"

Bottom line, unless I`m missing something I have no issue with them summarizing it this way.

Regards.

 

[Thomas Beyer]

QUOTE (investmart @ Oct 19 2008, 05:55 PM) Bottom line, unless I`m missing something I have no issue with them summarizing it this way.

Regards.
Their statement is OK .. albeit unusual. If you don`t pay, they`ll likely foreclose on you many moons before 60 months is up anyway !

 

[Nir]

Thank You Thomas for the HUGE support and GREAT advice along the way!!!

If everything goes well, it will be my second plex when closing next month.

Regards,
Neil

 

[Nir]

Quick update on the topic - while the statement is OK even the mortgage broker was not comfortable summarizing it this way and changed the amount from $155K to $105K today!

Makes more sense now when the end of term amount owing is the principal and is based on monthly payments along the way, not jut paying everything at the end

I`m no longer worried it is a balloon loan Cheers.