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What is the difference between fixed rate and variable rate mortgages?
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| A fixed rate mortgage is a loan where the principal and interest payment never change during the life of the loan. A variable rate mortgage is a loan where the interest rate can change periodically. The changes in the interest rate are tied into the market rates that exist at the time the rate is set. Initial rates for ARMs are generally lower than fixed rates, but can adjust upward or downward if interest rates change. There is a set cap which defines how high the interest rate can adjust at each adjustment, and over the life of the loan. Fixed rate mortgages are beneficial to those who are on a fixed income and for those who prefer fixed payment schedules. Adjustable rate mortgages are advantageous for those who do not plan to stay in their home for a long time, for those borrowers who do not qualify at higher fixed interest rates, and for those who can financially handle fluctuating payments. |
How do adjustable rate mortgages work?
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| There are many types of adjustable rate mortgages, but all have some common features. One common feature of adjustable rate mortgages is an interest rate change that occurs after a stipulated number of payments have been made. The interest rate can increase or decrease depending on how the new interest rate is calculated. Typically, the interest rate change is based upon a predetermined index value and a margin. If a mortgagor currently has an interest rate that is pending adjustment, the new rate would be calculated by adding the current index rate and a margin. For example, if the mortgagor’s current rate was 6.000% with a 2.000% margin, the new rate would be determined by adding the current index rate (5.000% as an example) to the margin. In this example the new interest rate would be 7.000%. The maximum amount the interest rate can change during any adjustment period is usually fixed. This maximum adjustment is called the cap. Adjustable rate mortgages also have a lifetime cap, preventing the interest rate from exceeding a predetermined rate. |
What are escrow accounts and how much do I need in my escrow account?
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| Escrows are payments made by a mortgagor to a mortgagee for the purpose of paying the mortgagor’s taxes, insurance, and other payments associated with home ownership. The mortgagee is responsible for the timely disbursement of escrow funds to pay the mortgagor’s bills as they come due. Usually, a mortgage company collects funds for placement into the mortgagor’s escrow account with the mortgagor’s periodic payment for principal and interest. An escrow account has sufficient funds if there is enough to pay all bills when they come due. It is common practice for mortgage companies to hold an escrow cushion for a mortgagor. The cushion is kept by the mortgage company to assure that if the cost of any escrowed item were to increase in the future, there would be sufficient funds to pay all bills as they come due. |
Can my monthly payment amount change?
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Yes, your monthly payment amount could change for the following reasons:
Annual Escrow Analysis - At least once a year, we will analyze your escrow account, and adjust the portion of your monthly payment we collect for real estate taxes, insurance, and other escrow items. Your new monthly payment amount shown on the analysis will typically be effective on the anniversary of your first payment due date.
ARM Adjustments - If you have an adjustable rate loan, both the interest rate and principal and interest portion of your payment will change on a regular basis. To determine when your new principal and interest payment will become effective, please refer to your loan agreement. If you have an escrow account, the escrow portion of your payment will change also.
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When is my payment considered late?
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| The due date of your monthly payment is reflected in your loan documents and on your bill. Your payment should be mailed in time to be received by us on or before your due date. Any payment received more than fifteen days after the due date will be assessed a late charge. |
Can I pay extra on my loan?
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| Yes. As long as your loan is current, we will apply additional funds to the principal balance of your loan. |
Can I make my payment without a bill?
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Yes. If your payment is due and you do not have your bill, you may write your loan number on your check and drop it off at any branch office or mail it to:
Southbridge Savings Bank
PO Box 370
Southbridge, MA 01550 |
How are escrow surpluses and shortages handled?
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If your escrow analysis reflects a surplus over $50.00, a check for the surplus will be sent to you along with your escrow analysis. If the surplus is less than $50.00, this amount will be divided by twelve and used to reduce your monthly escrow payment.
If your escrow analysis reflects a shortage, we collect the shortage over the next twelve months by adding one-twelfth of the shortage amount to your monthly mortgage payment. If you prefer, you may pay the shortage in full, and we will adjust your monthly payment amount accordingly.
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When will my escrow account be analyzed?
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| Usually, your escrow account will be analyzed once each year, and your new monthly payment will be effective with the first payment in May. You will receive your Annual Escrow Analysis and a new bill during the month before the effective date of your new payment. |
Is my principal balance the amount needed to pay my loan in full?
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| No. The amount needed to pay your loan in full could also include interest, escrow advances, unpaid late charges, or other fees due on the loan. You must request a payoff statement to determine the exact amount needed to pay your loan in full. There may be a fee involved. |
Why do I need insurance on my property?
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| In order to protect the investment both you and Southbridge Savings Bank have made in your home, it is required that you maintain adequate insurance coverage on your property at all times. Without this coverage, there may not be funds available to repair your home in the event it is damaged. |
What type of insurance coverage do I need?
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| We recommend you discuss this matter with your insurance agent to be sure you have the type and amount of coverage which best meets your needs. We require your home be insured for at least dwelling coverage; however, contents coverage is at your option. If your property is located in an area which the government has designated as a special flood hazard area, you may also be required to obtain flood insurance for your property. |
What is lender-placed insurance?
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Lender-placed insurance is coverage we order to protect the property when we learn it is not insured. This can occur any time your insurance coverage expires or is canceled, and we do not receive proof of new coverage.
If it is necessary for us to order lender-placed insurance on your property, the premiums for this coverage will be paid from your escrow account. Because these premiums are typically higher than the premiums for insurance coverage obtained from your agent, we encourage you to work with your agent to make sure your property is adequately insured at all times.
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What do I do if my property is damaged?
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| To file a claim, please contact your insurance company immediately. If you have received an insurance claim check which lists us as a payee, please contact our Mortgage Servicing Department at 1-800-939-9103 so we can work with you to see that the damage to your home is repaired. |
Can I cancel my private mortgage insurance?
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| If you have a conventional loan. PMI must be maintained until you have at least 20 percent equity in your home. If you think you may have 20 percent equity at this time, please contact us at 1-800-939-9103 and we can send you written information outlining the specific cancellation criteria for your loan. |
How is my adjustable interest rate calculated?
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The initial interest rate on your loan was determined by the competitive market of rates in the mortgage lending industry for your particular ARM product at the time your loan was originated.
Beginning with your first adjustment, the new interest rate on your loan is calculated according to the formula in your loan agreement. This rate is typically determined by taking the index specified in your loan documents (such as the One-Year Treasury Index), and adding it to a fixed percentage, called the margin. This figure may then be rounded, and is often subject to rate caps, which limit how much your interest rate may change at any given adjustment, or over the life of the loan.
Please refer to your loan documents for specific information on the index, margin, and rate caps which apply to your loan.
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What can I do if I am experiencing problems paying my loan?
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| If you are experiencing difficulty making your mortgage payments, please phone our Collections Department at 1-800-939-9103 immediately. Our experienced staff handles situations like this daily, and they can offer options that are available to you to help you through this difficult time. Depending on the reason for the delinquency, your future financial outlook, and the type of mortgage you have, some or all of the following options may be available to you. |
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