i visited with a homeowner today and they have a 30 year conventional w/pmi - 27 years, 5 months left on a 30 year loan at 6.250%.
my question is the payment started at $477.18 on august 2005 and now it is $803.87 (october pmt) the only thing i can find is the property taxes has increased many times to $1,025 annually and the insurance has risen to $1,190 annually.
does anyone have any ideas why these would increase so much so quickly.
thanks all for your help.
Hi,
Based on the numbers I’ve seen, the payment has gone up about $325 per month. During the same time frame the insurance and property taxes have gone up by $185 (or is that the total monthly expense for those two items?) The $185 figure is 1/12 of the sum of the insurance and the taxes. That leaves a difference of $140 per month unaccounted for.
Did you verify that it’s a conventional loan and not FHA? If it’s FHA and there was an underpayment on taxes or insurance they’ll have to pay that back and set aside reserves over the course of the next year. Without more information I suppose there’s a possibility that could explain the difference.
Another possibility is that they’ve been late a few times and have accumulated unpaid fees, etc.
Finally, are you certain the interest rate info is right? One thing I’ve learned through the years is that homeowners are pretty regularly in the dark about the specific terms of their own loans. They don’t always look at the breakdown – they just assume they know what they’re talking about based on the bottom line. As you learn real estate investing you’ll discover that homeowners are as in the dark about their loans as politicians are about the laws they pass.
And in both cases they get righteously indignant about the reality when it comes back to haunt them.
Good luck!
Peter Vekselman
There are several reasons. This loan could be an ARM, with a fixed rate for the first three years. A 2% or 3% rate adjustment could account for the difference in the monthly payment amount.
You said that property taxes and hazard insurance premiums have risen many times in the interim. Many hurricane prone areas of the country have seen their insurance premiums double, triple, and quadruple in the past few years. Property taxes also are on the rise, mainly due to reduced tax base as a result of declining property values. Substantial increases in hazard insurance premiums and property taxes could account for the increase. You don’t say whether the property you are looking at was purchased from the builder in a new development. If so, then the first year property taxes could have been assessed as undeveloped agricultural property. A recent reassessment updated the use of the property and increased the property’s value with a subsequent increase in the property taxes.
Don’t overlook the impact of escrow account shortfalls. Each year the lender does an escrow analysis to the amount needed in the escrow account when bills have to be paid. If the analysis shows a shortfall is projected, the amount of the shortfall is collected in 12 monthly installments. This could also add several dollars to the monthly payment and account for some of the increase.
I have never heard of this happening, but could it be possible that PMI payments went up? As the default rate increased over the past couple years, so did the risk for the PMI company. Could they have raised their premium?
first thank you for your help.
where would i locate if the mtg is fixed or arm, i did not know that it could be fixed and the payments go up. i have the information to sign on to the mtg web site, but for some reason the web site tells me this person’s mtg can not be accessed on the web. i could have them call the lender, but i have a fear they would mention they are ttrying to sell the property.
i have his last invoice from the mtg company, the only info on the mtg is:
Loan Type and Term:
30 Year Conv w/PMI
27 yrs, 5 mo Remaining
6.25% Rate
on the invoice it states that is a escrow shortage of $741.79 due june 1, 08 and a pmt of $827.73 due may 1, 08.
i will probably let this deal go … or refer him to someone else for a fee.
A “conventional loan” is any kind of lender agreement that’s not backed in full by the Veterans Administration or protected by the FHA (the Federal Housing Administration). There are several broad categories of conventional loans. The most common are fixed rate loans, adjustable rate loans, and a hybrid loan that combines both a fixed rate feature with an adjustable rate loan.
With a fixed rate mortgage, a home borrower “locks in” at the stated interest rate for the entire term of the loan, and he or she pays down the principal and interest on the mortgage every month at that rate.
An adjustable rate mortgage loan has a variable rate that changes periodically to reflect changes in market conditions. Some ARMs change the rate every month, others may change the rate once a year.
A hybrid adjustable rate mortgage has an initial period where the rate stays fixed. When the fixed rate period expires, the interest rate adjusts in accordance with market conditions every month (or year) until the loan is paid off. A common ARM offering is a 3-year ARM, which has a fixed rate for the first three years of the 30 year loan term, then an adjustable rate for the remaining 27 years.
A feature of some adjustable rate loans is a minimum payment feature whereby the homeowner might be required to only make a minimum payment each month for a fixed period of time. The monthly minimum payment might not be enough to pay the interest that is actually charged on the loan. The difference is added to the loan balance. Because the loan balance is increasing every month with the minimum payment, the loan is said to be negatively amortizing.
At the end of the minimum payment period, the loan is recast as a fully amortizing loan for the remainder of the loan term. If the homeowner in your example had one of the ARMs with a minimum payment feature for the first two years, it would be very easy for their monthly payment to increase significantly when the loan is recast as a fully amortizing loan at the higher loan balance.
The closing documents will tell you whether the loan is a 30-year fixed rate loan or an adjustable. Look for an adjustable rate rider in the loan documents and look for the payment options. The homeowner could also call the lender’s customer service representative and ask what loan type he has and what the loan features are.
Try accessing the homeowner’s loan information again at the lender’s website. You might have gotten the message you did if the database was offline for maintenance or updating. Or, you might have made a typo when entering the borrower’s loan or personal identifying information. If you still have trouble, have the homeowner call the lender and ask the questions you want answered. If the homeowner does not understand why the payment has increased, the lender’s customer service rep should be able to explain it. You don’t need to give any other reason when you call.
By the way, it might he helpful to know if the loan has a pre-payment penalty.