DEAR BOB: When we refinanced out mortgage a few years ago, the bank wanted both our home and commercial property as security. The bank's senior vice president orally promised to release our home from the mortgage when the balance dropped. The man who made this promise has left the bank. We have asked the bank to release our home from the mortgage, but the officers now refuse unless we agree to increase the mortgage interest rate 2 1/2 percent. What can we do? -- Mrs. G. B. Washington.
DEAR MRS. G. B.: Your situation shows why you shouldn't trust a lender's promise unless it is in writing. See your attorney. I bet he'll advise that it's not worth the legal cost to fight the bank. Most lenders have unlimited legal funds to fight borrowers, so borrowers usually lose.
DEAR BOB: Like many other home sellers, we've had our home listed for sale too long. When the first listing expired, we switched to a more aggressive agent. She says to get our home sold we must "package" it right. According to her, most home buyers ask "How much is the downpayment? and "How much will my monthly payment be?" If this is true, she says we can raise our asking price in return for carrying a second mortgage for the buyer. Do you agree? -- Rege D., Falls Church.
DEAR REGE: Yes. Your agent understands what motivates buyers. It's not the price, but the terms that sells homes today. Wrap your home in an attractive package, called a "red-ribbon deal" in the real estate business, and it's half sold.
If your house is already in top physical condition, get it in top financial condition by offering attractive finance terms to make it stand out from the crowd of other unsold homes.
DEAR BOB: I have several questions about those new mortgages which allow the lender to raise the borrower's interest rate. (1) Does this new ruling affect my existing mortgage? (2) If I buy a house with one of these new mortgages is there any limit to the increase of my monthly payments or the total interest rate? (3) If I barely qualify for a home loan at today's high interest rate, will the lender foreclose if the interest rate goes up in the future? -- Alice U., Silver Spring.
DEAR ALICE: During the next few months, exact terms of the new adjustable rate mortgages (ARM) will evolve. Mortgage money is in very short supple now, as most S & Ls are low on cash, so lenders are slow to set their ARM loan terms.
(1) Your old existing mortgage will be unaffected. The new ARM conditions, allowing unlimited future interest rate changes, only affect new loans made after April 30, 1981.
(2) ARM loans have no limit to the annual or total interest rate change, up or down. The lender is shifting the risk to the borrower on such loans. Understanding your risk, accept an ARM loan only if no other financing is available.
(3) Lenders are gambling the borrower can afford future increased ARM payments if interest rates go up. If you can't afford increased payments, the principal balance can be increased to include unpaid interest. The unpleasant result could be you'll owe more on your ARM loan than you originally borrowed. The moral is stay away from ARM loans. A less risky VA or FHA fixed-interest rate mortgage is better.
DEAR BOB: As a real estate broker, I am concerned about my legal duty to my home buyers when I arrage a new mortgage. Usually I tell my buyers which lender is offering the best mortgage terms. My question: Am I incurring future liability if the buyer gets on of those new mortgages where the interest rate can be increased without limit? Although I dislike the new mortgages, I'm sure many home buyers will accept them since the alternative is not to buy the home. -- Jerry G., Washington.
DEAR JERRY: You are to be commended for your concern for your clients (as well as for keeping yourself out of trouble). y
If a real estate broker arranges a new mortgage for a buyer, the broker should be certain that the buyer understands the important terms. These include a due-on-sale clause (which can hurt the home's future saleability), the lender's ability to raise the interest rate, prepayment penalty (if any) and other important loan terms.
I share your dislike for the new unlimited interest rate mortgages authorized for banks and federal S & Ls. If these had been allowed the last few years, it's possible that a borrower would be paying hundreds of dollars more per month in interest than he expected to pay when he obtained the loan. To avoid future foreclosures, a limit should be placed on the maximum annual interest rate increase for these loans, perhaps at 1 percent or 2 percent.
Also, if your buyer is taking over an existing mortgage, be certain he understands its terms. For example, in my area many mortgages from federal S & Ls are nonassumable, and this drawback must be explained by the agent to buyers. Misrepresenting home finance can be just as bad for a realty agent sas misrepresenting the property itself.