- Staten Island’s only community-based commercial bank echoes government warning
STATEN ISLAND, N.Y. – When shopping for a home mortgage or refinancing in 2014, you may see or hear ads with offers of low rates or payments. Victory State Bank is echoing a warning from the Federal Trade Commission (FTC): Many ads for home mortgages are terribly flawed.
To help you recognize an offer that may be less than complete, learn the buzzwords that should trigger follow-up questions, as well as information to insist on after you've read an ad:
Low "Fixed" Rate
Ads that tout a "fixed" rate may not tell you how long it will be "fixed." The rate may be fixed for an introductory period only, and that can be as short as 30 days. When you shop for a mortgage, you need to know when and how your rate, and payments, can change.
Very Low Rates
Are the ads talking about a "payment" rate or the interest rate? This important detail may be buried in the fine print, if it's there at all.
The interest rate is the rate used to calculate the amount of interest you will owe the lender each month. The payment rate is the rate used to calculate the amount of the payment you are obligated to make each month. Some offers advertise a low payment rate without telling you that it applies only during an introductory period.
What's more, if the payment rate is less than the interest rate, you won't be covering the interest due. This is called "negative amortization." It means that your loan balance is actually increasing because you're not paying all the interest that comes due, and the lender is adding the unpaid interest to the balance you owe.
Very Low Payment Amounts
Ads quoting a very low payment amount probably aren't telling the whole story. For example, the offer might be for an Interest Only (I/O) loan, where you pay only the amount of interest accrued each month.
While the low payment amount may be tempting, eventually, you will have to pay off the principal. Your payment may go up after an introductory period, so that you would be paying down some of the principal – or you may end up owing a "balloon" payment, a lump sum usually due at the end of a loan. You must come up with the money when a balloon payment is due.
If you can't, you may need another loan, which, in turn, means new closing costs, and potentially points and fees. And if housing prices are falling, you might not be able to refinance to lower your payments.
About Victory State Bank
VSB Bancorp, Inc. (OTC: VSBN) is the one-bank holding company for Victory State Bank. As Staten Island, N.Y.'s only community-based commercial bank, Victory State Bank operates five full-service locations on the Island: The main office in the community of Great Kills, and branches in the communities of West Brighton, St. George, Dongan Hills and Rosebank. For additional information, Victory State Bank may be reached at 718-979-1100 or visited online http://www.victorystatebank.com.
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