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How the annotated mortgage was developed

Even savvy borrowers are confused by their own adjustable-rate mortgages. What's the current rate? When will the rate adjust? What will the new rate be? How high can it go? Much of the information is right there in the paperwork, but it's not easy to make sense of it because the mortgage documents are written in legalese.

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"Most borrowers, when it comes to mortgages, are very limited," mortgage banker Michael Moskowitz says. "They understand very little. They're ashamed to admit it."

But, Moskowitz adds, there's no shame in having trouble understanding the complexities of an adjustable-rate mortgage note.

It helps to have some guidance. Moskowitz, president of Equity Now, a mortgage bank based in New York City, gave Bankrate copies of real adjustable-rate mortgage documents (with names, addresses and identifying information deleted) so important passages can be highlighted and explained.

These annotated mortgages (see the interactive) are designed to help you find the information you need in your own loan papers. Can't locate the language that explains what your mortgage's margin is? Use the annotations here as a guide.

Your mortgage won't be worded exactly like these, but it should be similar. Mortgage documents tend to be fairly standard so they can be sold easily in secondary markets. "The days of having wacky notes are gone, probably 10 years ago," Moskowitz says.  

Moskowitz's advice to borrowers: Find your mortgage note and read it. "They really need to take half an hour, read it, absorb it, and look at it again the next day. If you're not a numbers person, read it anyway and think to yourself, 'OK, who do I trust to read it for me if I'm not the person qualified to do it?'"

An accountant would be a good person to ask, or an astute friend. Please don't ask a reporter. Moskowitz says to be careful about asking a mortgage person who might seize your question as an opportunity to refinance your loan and collect some fees.

In the ideal outcome, you read your mortgage papers, and with help from these annotations, you figure out what index your ARM uses, what the margin is, and when the rate changes. Then you use the worksheets and calculators on this Web site to estimate what your monthly payments will be.

"The best result," Moskowitz says, "is you say to yourself, 'Hey, I get it, because it's really not so complicated.'"

Bankrate.com's corrections policy
-- Posted: June 27, 2007
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