Q: A recent article stated that a New York bank was recalling its 8 1/2 percent mortgages and requiring borrowers to pay off the mortgages or take out mortgages at a higher interest rate. My question is whether lenders can recall all mortgages made at a lower interest rate? If not, under what conditions can a mortgage be recalled? I have heard there is a movement in Congress to permit savings and loan associations to recall mortgages. Do you know anything about this movement?
A: The New York institution reversed itself quickly because of the bad publicity--as well as pressure from the New York State authorities.
If you have a fixed-rate mortgage, as long as you make your payments on time and meet the other terms of the mortgage document (the deed of trust) you need not fear that your lender will recall your mortgage.
The mortgage instrument is a contract between you and your lender. The lender has agreed to lend you a sum of money for a fixed period of time--at a fixed rate--and you have agreed to make monthly payments, to keep the property in good condition, pay the taxes, and keep adequate insurance on the property.
As long as you are in full compliance with the terms of your mortgage there is nothing a lender can do that will affect that mortgage.
If you have a variable-rate or a negotiable-rate mortgage, then of course, the lender has certain rights to call or modify the loan terms--but again only in accordance with the terms of the documents you sign.
When you take out a mortgage, you sign two papers. The promissory note is your promise to pay in accordance with the terms of that document. You also sign a deed of trust, which is the mortgage instrument. The deed of trust places a lien (cloud) on the title of your house, so that if you are unable to make payment pursuant to the terms of the note, the trustees can sell your property at a foreclosure sale. There are various rules and regulations in the Washington metropolitan area regarding foreclosures, but you need not worry about those matters as long as you keep current on your mortgage payments.
Here is a strong suggestion for all borrowers: Obtain a copy of your promissory note and your deed of trust. If you do not have copies, your lender will be able to supply them to you fairly quickly. Although these documents are written in legalese, you should take the time to read those documents, to assure yourself that you are in compliance with all the terms.
Of course, you should have read those documents before you signed them, but as we all know, most people do not spend the time reading legal documents before they are signed.
There have been some recent incidents where lenders have been attempting to foreclose on low interest rate loans. This should be a concern to every borrower. However, as long as you keep up your monthly payments, make sure your taxes are paid and keep adequate insurance, you should be able to enjoy that low rate mortgage until its due date.
And even with all its powers, Congress cannot pass any laws which would retroactively change the terms of your mortgage.