Q: Do you have a calculator that will show the amortization for a modified, MULTIPLE stepped rate mortgage? My loan started at 6.5 percent, but was modified after three years. The terms were changed: The mortgage rate was reduced to 2 percent for the next five years, then goes to 3 percent for 1 year, then 4 percent for 1 year, then 4.375 percent for the remaining life of the original 30-year term. I am now about 5.5 years into the loan, and 2.5 years into the period of the first step of the modified loan (now at 2 percent) and want to know how much to pay each month in order to pay it off in the next 15 years. The servicer, SETERUS, won't give me a schedule--they say they are not a bank, so they don't have an amortization schedule to give me (??). Thanks!
A: We do have a mortgage calculator which will do this for you, but not automatically. You'll need to do the amortization in multiple steps. You will also want to check to see if the amortization period was extended to 40 years, a fairly common practice in loan modifications. If it was, you'll need to adapt some of the information below.
5 steps to calculating your payment
Here are five steps to calculating the amortization for your modified mortgage:
Step 1: You'll need your original loan balance, interest rate (6.5 percent) and loan term. Using HSH.com’s Mortgage Amortization Calculator, you'll need to find the remaining loan balance when the modification kicked in (having the precise month will help, but if you don't know, you'll need to ballpark it).
Jot this number down and keep it handy. This will become your loan balance for your next period.
Step 2: Go back to the calculator and plug in this number as your loan amount, add in the new interest rate (2 percent) and the REMAINING term of your original mortgage (likely 27 years). Calculate your payment, and then look to find the remaining balance after five years (payment number 60).
Step 3: Jot this number down; it will become your loan amount for your next step. Back to the mortgage calculator, plug in this number, change the term to (probably) 22 years, change the rate to 3 percent, then recalculate. Find the remaining balance after 12 months and record this number.
Step 4: Repeat Step 3, using remaining balance from Step 3, 21 year term, 4 percent rate.
Step 5: Repeat Step 4, using remaining balance from Step 4, 20 year term, 4.375 percent rate.
That will give you your total amortization steps over your modification--very similar to the amortizing an ARM.
Now, about that prepayment to pay it off in "the next 15 years":
You don't mention when you want to start prepaying the mortgage in order to retire it over 15 years. If you want to retire the loan in 15 years starting from today, regardless of the modified steps (that is, you will be prepaying the loan from now) the amortization will get very complicated as the lender will be adjusting your interest rate according to the modification schedule, which will in turn vary the amount of prepayment needed at each interval to maintain a fixed total term of 15 years.
A working (although imprecise) idea would be to average all the interest rates you will be charged (all 30 of them). Including what you've already paid, this would produce an average rate over the loan of 4.13 percent.
Using HSH.com 's It's My Term prepayment calculator, plug in your loan amount and desired end date for the loan and the calculator will return an additional prepayment amount needed to terminate the loan. Alternately, you could average the interest rates you are paying and have yet to pay over years 5-15. Either way should produce a working approximation.
If you choose to wait to prepay the mortgage until the end of your modification period, you will have 20 years remaining. Then, you can cut five years more off the loan by prepaying it. To do so, take the remaining balance at the end of Step 4, when the loan moves to 4.375 percent.
At this point, in essence, you have a 20-year mortgage with a 4.375 percent rate. Find the remaining balance and use HSH.com's It's My Term Mortgage Prepayment Calculator to generate the needed monthly prepayment to carve off those additional five years.
A 25-year expert observer of the mortgage and consumer debt markets, Keith Gumbinger has been cited in thousands of articles covering a wide range of consumer finance and economic topics in outlets ranging from the Wall Street Journal to the Bottom Line newsletters. He has been a featured guest on national broadcasts for CNN, CNBC, ABC, CBS and NBC television networks and has been heard on NPR and other national and local radio programs. Keith is the primary researcher and writer for HSH.com's MarketTrends newsletter and has authored or co-authored a number of consumer guides on mortgages, home equity, refinancing and more.