Before signing a contract, we must first determine the CAPS standard stipulated in the contract, which is usually divided into interest rate and Rate & Payment Caps. The former limits the peak of interest rate increase in a specific period, while the latter ensures the amount of monthly payment by the lender.
The upper limit of mortgage interest rate in the United States generally increases by no more than one point (1%) and no more than five points (5%) every year. However, some lenders will reserve the right to transfer the excess to the following year when the loan interest rate rises by more than a little in one year. Therefore, even if the loan interest rate falls in the following year, the lender’s mortgage interest rate still rises. The five-point clause sometimes exists alone, not in parallel with the annual increase of the upper limit; Lenders can therefore add five points to the mortgage interest rate at any time.
At first glance, the payment ceiling is quite attractive. Lenders may tell consumers that in any case, they will only pay 1,800 yuan per month for the mortgage, but when the interest rate rises, will lenders pay for it? The expert said, "There is nothing so good! At this time, the full interest payment of 1800 yuan does not reduce the principal. If it is not enough to pay interest, the part owed will be added to the total loan. Some lenders will let consumers extend the loan period, which of course means that consumers have to pay more interest; Others require that the installment payment be made up after the maturity. 」
Getting a loan interest rate below the market does not mean finding a bargain. If the interest rate of general lending institutions is 4%, some institutions take 2.5% as a gimmick, so consumers should be careful. Usually, the ultra-low interest rate will be maintained for one to two years, and then it will be parallel to the market or even higher to make up for the losses of lenders at low interest rates. In short, the wool is on the sheep, and the difference of 1.5% may have already been incorporated into the total loan, or the interest will be calculated without reducing the principal. Consumers will find that the period of paying off the loan must be extended.
The loan interest rate below the market will certainly make more consumers eligible for loans, and also make the parties mistakenly think that they can afford the mortgage. However, once the loan interest rate keeps up with or even exceeds the market, but the income does not increase relatively, it will become a heavy burden to pay the mortgage every month.
Mortgage experts also remind consumers that floating-rate mortgages are often subject to heavy penalties for early repayment. If they are repaid early in 2008, the penalty may be as high as 4%, which will be reduced to 3% in the second year, 2% in the third year and 1% in the fourth year. In other words, such floating-rate mortgages will not be repaid until the fifth year. If they are repaid early, the interest rate of 2.5% will become 6.5% to 5.5%.
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