function showText(tabNum, hgt){
var tab1Text = new Array(32)
//text for subprime tab
tab1Text[0] = "
Introductory rate
An introductory rate, or teaser rate, is the initial rate paid on an adjustable-rate loan. On a mortgage, the teaser rate might last as short as one month and as long as 10 years. The telltale words to watch for are, "The interest rate I will pay may change..." This passage says that the rate is 8.29 percent and that it "may change" according to rules described later in the contract. If a loan note gives the interest rate, and then says it may change, you have an adjustable-rate loan with an introductory rate.";
tab1Text[1] = " Payment amounts
A clue that this is an adjustable-rate mortgage is the phrase "initial monthly payments" and the sentence "This amount may change." This passage tells you how much the monthly payment will be -- until the change date. On this loan, that change date comes quickly.";
tab1Text[2] = " Change dates
This part of the contract describes how long the teaser rate will last. The first payment due on this loan was in February 2007, and the contract says the rate will change for the first time in February 2009 and can change every August and February after that. The initial rate lasts two years, and then it is reset every six months thereafter. This is known as a 2/28 mortgage, and generally a loan structured this way is for borrowers with tarnished credit. The common term for this loan is "subprime mortgage." The rate changes are widely known as resets, but the term "reset" is not used in this contract.";
tab1Text[3] = " Index
The rate on this loan changes every six months after the second anniversary. The new rate is calculated by adding an index plus a margin. An index is an interest rate or bond yield paid on some other type of debt, such as U.S. Treasury notes, an average of savings-account rates paid in the Western states or rates that banks charge one another in wholesale money markets in London. This passage tells you which index the loan uses -- the six-month LIBOR. Although this description doesn't use the phrase "six-month LIBOR," the heading at the top of the first page does, as well as the footer at the bottom of each page. This loan's index is the six-month LIBOR rate on the first business day before each change date. The first time this loan's rate changes, it will be based upon the six-month LIBOR rate on Friday, Jan. 2, 2009. (Jan. 1 isn't a business day because it's a holiday.)";
tab1Text[4] = " Margin
Whenever the reset date rolls around, the new rate is calculated by adding a margin to an index. The index is the six-month LIBOR; the margin, as described in this passage, is 7.04 percent. Let's say the index is 5 percent. Add the margin to that, and you get 12.04 percent. In virtually all cases, the six-month LIBOR won't be a round number like that. Let's say it's 5.358 percent. Add the margin of 7.04 percent to that, and you get 12.398 percent. Then you round it, up or down, to the nearest 0.125 percent. In this case, the lender would round down to 12.375 percent. Note that this contract never uses the word "margin" to describe the margin.";
tab1Text[5] = " Caps
An adjustable-rate mortgage's interest rate is based upon an index plus a margin, but that's not all that determines the new rate. There are limits, called "caps," that restrict how much the rate can change at one time or cumulatively. Note that the word "cap" doesn't appear in this description of the caps. This passage describes three caps. First, it says that the first time the rate is reset it can't jump higher than 11.29 percent and it can't drop lower than 8.29 percent. In other words, the initial rate jump can't be more than 3 percentage points from the introductory rate of 8.29 percent. After that, the rate can change every six months but it can't jump or drop more than 1 percentage point each time. This is known as the periodic cap. Finally, the rate can never exceed 14.29 percent. That's known as the lifetime cap. It can't drop below a floor of 8.29 percent, either.";
tab1Text[6] = " Prepayments
The borrower can make principal payments at any time over the interest-only period, or make extra payments toward principal afterward, without incurring a prepayment penalty. The mortgage can be paid in full at any time without risk of a prepayment penalty. But you have to declare any prepayments in the notes field of the check.";
tab1Text[7] = " Late charges
More than 15 days late with the payment? Tack on an extra 5 percent to the minimum amount owed.";
//begin text for option arm tab
tab1Text[8] = " Maximum limit
This is an indication that the loan allows "negative amortization." In other words, the borrower may make monthly payments that don't even cover the interest charges. The difference is added to the loan amount. This passage says the negative amortization can't exceed 10 percent. The loan is for $265,000, so negative amortization can't top $26,500. It's possible for the loan balance to rise to $291,500, but no higher.";
tab1Text[9] = " Teaser rate
Good news! The interest rate is only 1.75 percent! Bad news: "The interest rate I will pay may change." That indicates that this is an adjustable-rate mortgage. That starting interest rate is often called a "teaser rate" or "introductory rate."";
tab1Text[10] = " Rate change dates
Even worse news: The teaser rate lasts only a month! This loan closed on May 25, 2006, the first monthly payment was due July 1, 2006 -- and that's when the interest rate changes for the first time, too. Then the rate changes every month. (But the payment doesn't necessarily change. More on that later.)";
tab1Text[11] = " Index
Each month's interest rate is calculated by adding an index to a margin. An index is an interest rate or bond yield paid on some other type of debt, such as U.S. Treasury notes, an average of savings-account rates paid in the Western states or rates that banks charge one another in wholesale money markets in London. This passage tells you which index the loan uses -- the 12-month average of constant-maturity 1-year Treasury notes, widely known as the 12-month MTA. Although this description doesn't use the phrase "12-month MTA," the heading at the top of the first page reads "MTA - Twelve Month Average Index," and the footer at the bottom of each page reads "MTA Index." This loan's index is the 12-month MTA yield 15 days before the first of the month.";
tab1Text[12] = " Margin
Each month, when the reset date rolls around, the new rate is calculated by adding a margin to the index. The index is the 12-month MTA; the margin, as described in this passage, is 3.15 percent. Let's say the index is 5 percent. Add the margin to that and you get 8.15 percent. In virtually all cases, the 12-month MTA won't be a round number like that. Let's say it's 5.029 percent. Add the margin of 3.15 percent to that, and you get 8.179 percent. Then the lender rounds it, up or down, to the nearest 0.125 percent. In this case, the lender would round down to 8.125 percent.";
tab1Text[13] = " Rate cap
An adjustable-rate mortgage's interest rate is based upon an index plus a margin, but that's not all that determines the new rate. This option ARM has limits, called "caps," that restrict the maximum and minimum interest rates. Note that the word "cap" doesn't appear in this description of the caps. This passage describes two caps. The maximum possible rate is 9.95 percent. The minimum possible rate is the margin -- 3.15 percent. In practice, the rate charged after the first rate change was much higher than that. In mid-June 2006, the 12-month MTA was around 4.5 percent. The margin was 3.15 percent. So the rate jumped from 1.75 percent in the first month to around 7.625 percent in the second month. At least it can't rise above 9.95 percent. (Since the rate has to be rounded to the nearest eighth of a percent, the maximum rate is really 9.875 percent.)";
tab1Text[14] = " Payment amounts
The minimum monthly payment is $946.70 unless negative amortization increases to the maximum limit. Then it will rise according to the rules in Section 3(F).";
tab1Text[15] = " Payment change dates
The minimum monthly payment may change every July, and then it lasts a year except in certain cases described in confusing detail below. Note the mention of negative amortization.";
tab1Text[16] = " Calculating monthly payments
The minimum monthly payment can't increase more than 7.5 percent when it is changed each July. This payment cap applies to increases in principal and interest and doesn't count taxes, insurance and other fees added to the monthly payment. There are exceptions, though -- in some instances, the payment can rise a lot more than 7.5 percent.";
tab1Text[17] = " Negative amortization ("adding to principal")
The borrower is allowed to make a payment that doesn't cover the interest charged. When that happens, the unpaid interest is added to principal. Naturally, interest is charged on this unpaid interest.";
tab1Text[18] = " Recasting
The interest rate can climb a lot faster than the payment cap. This is what's confusing about option ARMs and why unwary borrowers can find themselves getting into trouble. For the first year, the borrower's minimum payments are based on a rate of 1.75 percent, even though the rate is north of 8 percent for most of that year. Then the minimum payment rises by 7.5 percent, but that barely makes a dent in the negative amortization that the borrower accumulates with each minimum monthly payment. The rate can rise every month, while the minimum payment stays the same for 12 months beginning each July. If negative amortization reaches 110 percent of the original loan amount, the 7.5 percent payment cap is tossed out the window, and the borrower immediately has to begin paying enough principal and interest to retire the loan over the remaining term.";
tab1Text[19] = " Payment options
Every five years, the borrower has to begin paying enough principal and interest to retire the loan over the remaining term -- until the next July, that is. Most of the time, the borrower has the option of making the minimum payment, even if it negatively amortizes; an interest-only payment that covers all the interest charged; a payment that would pay the loan off over a 30-year term; or a payment that would pay the loan off over a 15-year term. Those last three options are available only if they exceed the minimum payment.";
tab1Text[20] = " Prepayment penalties
The borrower can make principal payments at any time without incurring a prepayment penalty. The mortgage can be paid in full at any time without risk of a prepayment penalty.";
//begin balloon tab
tab1Text[21] = " Balloon
This balloon note accompanies a mortgage with payments amortized over 40 years. On this loan ($348,000 at 7.25 percent), a 40-year repayment schedule costs about $150 less than a 30-year repayment schedule. Although the payments are on a 40-year schedule, the loan is for 30 years. At the end of 30 years, the borrower will have to pay off any remaining balance in what is known as a balloon payment. With this mortgage, if the borrower paid on time every month for 30 years, and never made an extra payment toward principal, the borrower would be required to pay $188,531 in a lump sum on June 1, 2037. That's how much the borrower would still owe on the mortgage after 30 years. Presumably, it won't come to that -- the borrower will have sold the property, or refinanced the mortgage, before June 2037.";
//begin prepayment tab
tab1Text[22] = " Prepayment penalty
In the first year after the loan is closed, the borrower is discouraged from making any additional payments toward principal. For every $100 paid extra toward principal in the first year, the borrower must pay $105. Prepayment penalties are often more complex than this; for example, a borrower might have to pay six months' interest on any amount prepaid that is in excess of 20 percent of the original principal amount. A borrower might have to hire an accountant to determine if a prepayment penalty is figured correctly.";
//begin prime arm tab
tab1Text[23] = " Teaser rate
A teaser rate, or introductory rate, is the initial rate paid on an adjustable-rate loan. On a mortgage, the teaser rate might last as short as one month and as long as 10 years. The telltale words to watch for are, "The interest rate I will pay may change ..." This passage says that the rate is 5.625 percent and that it "may change" according to rules described later in the contract. If a loan note gives the interest rate, and then says it may change, you have an adjustable-rate loan with a teaser rate.";
tab1Text[24] = " Payment amounts
Another clue that this is an adjustable-rate mortgage is the phrase "until the first Change Date." This passage tells you how much the monthly payments will be -- at least, until the change date.";
tab1Text[25] = " Change dates
This part of the contract describes how long the teaser rate will last. This loan closed in March 2007, and the contract says the rate will "change to an adjustable interest rate" in March 2014 and can change every March after that. In the mortgage world, this is known as a 7/1 ARM because the initial rate lasts seven years, then the rate changes every one year. The rate change is widely known as reset, but the term "reset" is not used in this contract.";
tab1Text[26] = " Index
The rate on this loan changes every year after the seventh anniversary. The new rate is calculated by adding an index plus a margin. An index is an interest rate or bond yield paid on some other type of debt, such as U.S. Treasury notes, an average of savings-account rates paid in the Western states or rates that banks charge one another in wholesale money markets in London. This passage tells you which index the loan uses -- the one-year LIBOR. Although this description doesn't use the phrase "one-year LIBOR," the heading at the top of the first page does, as well as the footer at the bottom of each page. This loan's index is the one-year LIBOR rate 45 days before each change date: Jan. 15 or Jan. 16, depending upon whether it's a leap year. ";
tab1Text[27] = " Margin
Whenever the reset date rolls around, the new rate is calculated by adding a margin to an index. The index is the one-year LIBOR in mid-January; the margin, as described in this passage, is 2.25 percent. Let's say the index is 5 percent. Add the margin to that, and you get 7.25 percent. In virtually all cases, the one-year LIBOR won't be a round number like that. Let's say it's 5.297 percent. Add the margin of 2.25 percent to that, and you get 7.547 percent. Then you round it, up or down, to the nearest 0.125 percent. In this case, the lender would round down to 7.5 percent. Note that this contract never uses the word "margin" to describe the margin.";
tab1Text[28] = " Caps
An adjustable-rate mortgage's interest rate is based upon an index plus a margin, but that's not all that determines the new rate. There are limits, often called "caps," that restrict how much the rate can change at one time or cumulatively. Note that the word "cap" doesn't appear in this description of the caps. This passage describes three caps. First, it says that the first time the rate is reset, it can't jump higher than 10.625 percent and it can't drop lower than 2.25 percent. In other words, the initial rate jump can't be more than 5 percentage points from the teaser rate of 5.625 percent. After that, the rate can change every year, but it can't jump or drop more than 2 percentage points. This is known as the periodic cap. Finally, the rate can never exceed 10.625 percent. That's known as the lifetime cap.";
tab1Text[29] = " Recasting
This 7/1 ARM allows the borrower to pay only interest for the first 10 years. This passage spells it out, saying that the first payment of both interest and principal is due on the loan's 10th anniversary. It refers to Section 3(A) of the note, which says that the payments must be enough to pay off the loan by its 30th anniversary. In practice, this means that on the mortgage's 10th anniversary, the loan must be "recast" to pay off the remaining principal and interest over the next 20 years. If the borrower hasn't paid down any principal, the jump in payment will be considerable. This passage looks innocuous, but woe to the borrower who doesn't understand the implications.";
tab1Text[30] = " Prepayments
The borrower can make principal payments at any time over the interest-only period, or make extra payments toward principal afterward, without incurring a prepayment penalty. The mortgage can be paid in full at any time without risk of a prepayment penalty.";
tab1Text[31] = " Late charges
More than 15 days late with the payment? Tack on an extra 5 percent to the minimum amount owed.";
document.getElementById("showHere").innerHTML = tab1Text[tabNum];
}
function resetText(defaultNum){
var defaultText = new Array(5);
defaultText[0] = " Prime ARM
Scroll over the highlighted sections to find explanations of the following specifics for this loan: teaser rate, change dates, index, margin, caps, recasting, prepayments and late charges.";
defaultText[1] = " Subprime ARM
Scroll over the highlighted sections to find explanations of the following specifics for this loan: teaser rate, payment amounts, change dates, index, margin, caps, recasting, prepayments and late charges.";
defaultText[2] = " Option ARM
Scroll over the highlighted sections to find explanations of the following specifics for this loan: maximum limit, teaser rate, rate change dates, index, margin, rate cap, payment amounts, payment change date, calculation of monthly payments, negative amortization, recasting, payment options and prepayment penalties.";
defaultText[3] = " Balloon
Scroll over the highlighted section to find an explanation of the balloon.";
defaultText[4] = " Prepayment penality
Scroll over the highlighted section to find an explanation of the prepayment penalty.";
document.getElementById("showHere").innerHTML = defaultText[defaultNum];
}