Rod R. Blagojevich D. Lorenzo Padron Adjustable Rate vs. Fixed Rate No Surprises Our Mission Governor Commissioner Mortgages

Adjustable rate mortgages (ARM) generally have Borrowers are often vulnerable when they sit down to The mission of the Illinois Office of and Real lower fees and definitely have a lower starting interest finalize a mortgage . They can be presented with Estate is to protect and educate the public and promote rate, and borrowers often qualify more easily. A hybrid a situation where the interest rates, points, or closing confidence in the regulated industries through adminis- ARM provides fixed payments for three (3) to seven costs are different than what was previously agreed. tration of statutory responsibilities in an efficient, ILLINOIS professional, responsive, and innovative manner. (7) years and is then adjusted to the current interest Don't be taken advantage of. Be prepared to take steps rates. to avoid last minute glitches or bad surprises in your The agency is comprised of the Office of the transaction. Commissioner (including consumer services), a Bureau of If you're considering an adjustable rate mortgage, Administration, and three regulatory bureaus. you should ask the following questions: When your loan is approved, immediately get the loan commitment in writing. Important terms in this Bureau of Banks and Trust Companies: The mission • How often can the interest rate change? commitment should include the loan amount, and the of the bureau is to charter, authorize, and supervise scheduled or tentative agreed interest rate. Without a state-chartered commercial banks, foreign offices, • How much can the interest rate change or electronic funds transfer system, and corporate fiduciaries “lock in,” the interest rate offered at closing can be decrease at each adjustment period? in order to assure the safety and soundness of such OFFICE OF BANKS AND REAL ESTATE considerably different from the amount you anticipat- institutions in compliance with applicable laws and • How much can the interest rate increase or ed regulations for the benefit of the public. The bureau decrease during the course of the loan? also registers check printers, non-financial institution Insist on a signed good faith estimate for all the fees • What is the index for the mortgage and where deployers of ATM’s and licenses pawnbrokers that that you will be required to pay up front. Also confirm operate in Illinois. is it published? the circumstances under which your money will be Bureau of Real Estate Professions: As directed by law, Basic Information • What is the history of the index? The lender refunded if the deal fails to close. the bureau administers and enforces the Illinois Real must give examples of how much rates have Avoid any lenders who won't provide their commit- Estate License Act of 2000, the Illinois Real Estate About Mortgage varied in the past when discussing adjustable ments and promises in writing. Timeshare Act, The Land Sales Registration Act, the rate mortgages with you. Real Estate Appraiser Licensing Act, and the Provisions The purchase of a home is generally the largest and Rules of the Uniform Standards of Professional • Can an ARM be changed to a fixed rate loan investment you will ever make. The terms of your Appraisal Practice. at some point during the life of the loan? mortgage can mean enormous differences in how Bureau of Residential Finance: The mission of the Office of Banks and Real Estate • How much would it cost to change from an much your home actually costs you. bureau is to fairly administer the Illinois Savings and 500 East Monroe Street adjustable rate loan to a fixed rate loan? Loan Act, the Savings Bank Act, and the Residential Springfield, Illinois 62701 Mortgage License Act of 1987 and the regulations Phone: (217) 782-3000 promulgated thereunder. The bureau consists of the Fax: (217) 524-5941 Many times an adjustable rate mortgage offers a lower Thrift Division and the Mortgage Banking Division. TDD: (217) 524-6644 or discounted rate for the first year or two of the Consumer Services: The Illinois Office of Banks and loan, resulting in lower monthly payments. Know Real Estate seeks to ensure that licensees are operating 310 S. Michigan Avenue, Suite 2130 how much higher the rate and payments will be after ethically, honestly, and in compliance with the Acts and Chicago, Illinois 60604 the discounted period. Rules that govern them. Our Consumer Services Division Phone: (312) 793-3000 is dedicated to serving you, the consumer. If you should Fax: (312) 793-7097 have a comment or concern about one of our regulated TDD: (312) 793-0291 entities, our staff will be happy to help you. Consumer Services Toll Free Hotline: 1-877-793-3470

Printed by Authority of the State of Illinois IL 505-0563 July 2003 www.obre.state.il.us About Our Agency Basic Information • Your bank account numbers and balances you How much will closing costs be? Lenders impose have as well as information about any savings or charges for such items as obtaining your credit report, About Mortgage Loans investments you have. title insurance, a survey of the property, an appraisal, notary fees, deed preparation, and other provided Before you begin to search for your new home, you • Information on all vehicles that you own including their year, make, and value as well as any amounts services. should pre-qualify for a mortgage loan. A preapproved still due on their vehicle loan, the name of the Dear Illinois Consumer: mortgage loan helps you to determine the price range lender and the amount of any monthly payments. How long after I apply will the rate be guaranteed? of homes you can afford and how much you will need Some lenders will guarantee a specific rate for a • A list of your debts and regular bills, account for a down payment and for closing costs. specific time period, some will not. Some charge a On June 1, 1996, the numbers and how much you owe. fee to lock in the interest rate, some do not. Be sure Governor approved the Shop for a loan not a lender. Despite any long-term • If you have ever filed for bankruptcy, a copy of to get any rate guarantee in writing. merger of the Office of the relationship you may have with a given financial Commissioner of Banks the bankruptcy petition or discharge. institution, its loan terms may not be the best deal for How long will it take to process my mortgage and Trust Companies you. Loans are often sold on the secondary market, so • If you are a veteran, a copy of your discharge papers. with the Office of the application? This could affect the timeframe for the bank you deal with initially may not be the same • Bring a picture ID along with your social security Commissioner of Savings successfully completing your purchase of a specific one that services the loan long term. number. and Residential Finance to piece of property. Get a time commitment in writing create a new agency called the Office of Banks and Real To get a good deal, you must become as knowledgeable from the lender. Estate. The agency has 265 employees with headquarters as you can before approaching a lender. Your local What type of mortgage is it? Is it a VA, FHA, or in Springfield and Chicago and five remote offices located in newspaper will list current mortgage rates offered by Questions You Should conventional mortgage? VA and FHA are federally Belleville, Champaign, Effingham, Jacksonville, and Peoria. lenders in the market area. Interview different lenders Ask The Lender insured mortgages. Conventional mortgages are not. over the phone before meeting a loan officer to learn VA loans do not require private mortgage insurance. The Illinois Office of Banks and Real Estate is responsible terms each lender is offering. Determine whether their Is the lender a mortgage broker or a mortgage lender? FHA and conventional loans have private mortgage for the supervision, regulation, and examination of 510 company is the actual lender or acts as a broker. A This question is hard to determine when the lender is insurance added your monthly mortgage payments if state-chartered banks with assets in excess of $146 billion, mortgage broker acts as a third party between you and your down payment is less than 20%. 18 foreign bank branches with assets in excess of $43 billion, the lender and they receive a fee for their services. not a bank. A mortgage broker does not make a loan, but rather acts as an agent for the customer to find a and 214 corporate fiduciaries with trust assets in excess of What are the terms of the loan and how much Research the company's history of dealing with its cus- suitable mortgage lender and usually charges a fee for $2.3 trillion. The agency charters, examines, and supervis- will my mortgage payment be each month? This tomers. their service as an independent contractor. The mort- es 48 state-chartered savings banks and savings and loans. figure should include principal, interest, taxes and gage lender is the company actually making the loan. Additionally, the Office of Banks and Real Estate licenses insurance. and regulates over 1,700 mortgage brokers and mortgage What is the interest rate and what is the annual bankers, 73,000 real estate professionals, 1,700 auction- Information You Should What charges will I have to pay up front? These are percentage rate? The interest rate is the rate of interest eers, and 5,800 appraisers in the state. The Office of commonly known as closing costs. They include any Take To The Lender contracted for the duration of the loan. The annual Banks and Real Estate also registers/licenses land sales, points, credit report charges, appraisal fees, document percentage rate is the yearly rate for all finance charges, timeshare, check printers, leasing agents, home inspectors preparation, title insurance, etc. Your lender will need to know your family's monthly interest and any prepaid charges. and pawnbrokers. income and expenses. When you apply for mortgage loan Is there a prepayment penalty? This is important if take the following information with you: Is the rate fixed or adjustable? A fixed rate mortgage you wish to pay more than your normal monthly All of the agency’s revenue is derived from fees paid by our has the same rate for the full term of the loan. An • Your address(es) for the past two years. If you mortgage payment in order to reduce the length of regulated and licensed entities. The agency budget must be adjustable rate mortgage changes interest rate currently rent, bring in the name and address of time you are paying and reduce the total amount approved by the Illinois General Assembly and signed by depending on the changes in an index to which the your landlord. of interest you pay over the term of the loan. Do not the Governor. loan rate is linked. Your interest rate can increase or sign a form that states “there may be a prepayment • Your employer(s) for the last two years and several decrease as a result of these changes and subsequently recent pay stubs. penalty”. Address this issue up front, in writing. your monthly payments are affected accordingly. • A copy of your tax returns for the last two years. D. Lorenzo Padron If you receive alimony or child support bring your Will I have to pay points (prepaid finance charges)? Commissioner divorce papers. Also proof of any other income you A point is one percent of the mortgage loan paid up have, as well as any retirement benefit information front by the buyer or the seller to the lender. statement you might possess.