A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan. A mortgage loan is a secured loan in which the collateral is property, such as a home.

Time is on your side

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ARM with a long fixed-rate term gives homeowner time to plan

Question: I have a mortgage that is 12 months into the loan. The mortgage is an interest only jumbo, 6.5% fixed for 10 years, then it is adjustable for the next 20 years. I have been paying on time and my credit score is 820. Do you think I can get the bank to agree to give me a new loan fixed for 30 years with interest and principal? I worry that after the 10-year, interest-only period, the payment will shoot up to a point that I might not be able to pay. I am self-employed. A no-doc loan was recommended because it was easier to get approved. I worry that I won't be able to stay in house when it comes time to retire. Mat.

Answer: Calm down there, Mat. You have nine years to go before the loan switches to an ARM. That's a long, long time in the mortgage rate world, and no one -- I repeat, no one -- has even the slightest clue what loan costs will be in 2017. Hopefully, by then things will have settled down to a point that resembles normalcy. Hopefully, they will settle down sooner, much sooner.
Also, I want you to look at your loan documents to see if there is an interest-rate cap. Usually, there is a ceiling above which your rate cannot go, no matter what the market does. Typically, it's two percentage points above the market rate at the time you took out your loan. The cap is your fail-safe point. You will never, ever be charged more than that rate. So at least you know what your worst possible situation can be, and you can proceed from there.

For the time being, watch rates closely so that if they drop down to a comfortable level, you can try to refinance. But be forewarned, the jumbo market is all but closed, even to folks with superior credit. If you were lucky enough to find a lender who is dabbling in that sector, the cost is very expensive, probably one or two points about the rate for conventional conforming mortgages. Also, since you are self-employed, you'd probably be hit with a risk premium that would take your rate higher yet. read more

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