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Attachment A FEDERAL RESERVE BOARD CONSUMER PROTECTION RESOURCES Key Questions to Ask About Your Mortgage When you are shopping for a loan, ask each lender the questions below. Some loans have risky features that could make it difficult for you to make payments in the future. Make sure you understand the terms of your loan. If you are not comfortable with the risks, ask your lender about other loan products. The only way to make sure you get the best possible loan terms is to talk to several lenders. Shop. Compare. Negotiate. For more information about risky loan features, read Shop Wisely: Understanding Your Mortgage Choices, available at: www.federalreserve.gov. 1 Can my interest rate increase? If you have an adjustable rate mortgage (ARM), your interest rate can go up or down after a short period. This means that your monthly payments could increase. Can my monthly payment increase? 2 With some loans, your monthly payment could increase after a period of time, often by hundreds of dollars. This increase could be because you have a lower introductory interest rate, your property taxes or insurance premiums increase, or because in the beginning your monthly payment only covers the interest on the loan, and not the principal owed. Will my monthly payments reduce my loan balance? 3 Some loans let you pay only the interest on your loan each month. These payments do not pay down the amount you borrowed. As a result, if you have this type of loan, you may not build any equity in your home. Even if I make my monthly payments, can my loan balance increase? 4 Some loans let you choose to pay even less than the interest owed each month. The unpaid interest is added to your loan balance and increases the total amount that you owe. This could cause you to lose equity in your home over time. Could I owe a prepayment penalty? 5 Some loans charge you a large fee if you pay off your loan, refinance it, or sell your home within the first few years of the loan. This penalty fee could be thousands of dollars. Will I owe a balloon payment? 6 Some loans require a very large payment at the end of the loan—sometimes tens of thousands of dollars. If interest rates go up or if the value of your property drops, you may not be able to refinance your loan before you have to make this large payment. Will I have to document my employment, income, and assets to get this loan? 7 Sometimes a lender will make a loan without requiring you to show that you are employed and have the income or assets to repay the loan. These no-documentation (“no-doc”) or low-documentation (“low-doc”) loans usually have higher interest rates or higher fees than other loans.
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