Last week there was a ruling by a federal judge that may have a larger impact in the mortgage industry. A couple had refinanced their home using an option ARM. They paid a ridiculously low rate of 1.95% which they believed was locked in for five years. In truth, the rate went to 4.375% after only two months and continued to rise. However, the payments stayed the same even as the interest rate increased.  So, in effect, even as they made monthly payments, the total amount they owed the bank actually increased each month.

The judge ruled that the disclosures provided to this couple were confusing and unclear and thus violated the Federal Truth in Lending Act. The ruling was narrowly written and at this point in time only covers refinancing. But now that the barn door is open, expect to see additional suits that broaden the scope.

This particular ruling was against Chevy Chase Bank in Maryland. But there are many, many lenders who have made these loans. Many of them will be adjusting their policies as a result of this ruling.

The big lesson here is that no one should ever sign loan documents without completely understanding what it is they're getting. Don't ever hesitate to to make people stop and fully explain what it is you'll be paying both now and in the future and how it impacts the balance of your mortgage. If you've already signed documents that put you into a mortgage that you're now uncomfortable with, explore your options.  But be aware that many of these exotic loans have prepayment penalties attached as well.

Carefully choosing your lender is a good start to avoiding these kind of problems. If you're looking for a good one, go to my web site http://www.JulieEmery.com and click on "Local Partners" near the bottom for some of the people I highly recommend. Or give me a call at 540-341-3541 and we can discuss your particular situation.

In my opinion, no house is worth a mortgage that will give you sleepless nights down the road!