This form is used by a buyer, owner or their agent when locating the most advantageous adjustable rate mortgage (ARM) financing available for funding the purchase or refinance of a property, to provide a checklist for conducting an interview with mortgage lenders and noting for comparison the terms they offer on an ARM.
Walking the buyer through mortgage financing
The ability of a buyer or an owner to obtain financing is an integral component of most real estate transactions.
The buyer’s agent, referred to by lenders as the transaction agent (TA) in the context of financing, owes their buyer the duty to ensure they negotiate the best financial advantage available among multiple mortgage lenders.
The duties imposed by agency law on the TA include:
- helping the buyer locate the most advantageous mortgage terms;
- oversight of the mortgage application submission; and
- policing the lender’s mortgage packing process and funding conditions.
Recall that a lender’s objectives and goals are diametrically opposed to those of the buyer. The lender is selling a product to potential buyers. Consequently, homebuyers have the liberty to accept — or reject — a lender’s offer.
The buyer’s agent owes a fiduciary duty to their buyer to help them acquire the information needed to make an educated choice regarding their finances. Without mortgage information, a homebuyer cannot make a well-informed decision as to which mortgage offers the most advantageous terms.
Thus, the buyer’s agent is obligated to shepherd their homebuyers through the asymmetry of information created by the buyer’s inexperience and the lender’s silence about the mortgage process and available mortgage options. Agents, well-versed in real estate fundamentals and lender conduct, are the only ones available to walk their homebuyers through the mortgage market.
Interest rate variations
A promissory note is a document given as evidence of a debt owed by one person to another. It is given in exchange for property as a promise to pay. The signed promissory note is not the debt itself, but evidence the debt exists.
Promissory notes are partly distinguished based on interest rate calculations, such as:
- fixed interest rate notes, commonly called fixed rate mortgages (FRMs); and
- variable interest rate notes, commonly called adjustable rate mortgages (ARMs).
The most common type of home financing in the U.S. is the 30-year FRM. Under this arrangement, the interest rate and scheduled payments remain fixed for the life of the mortgage, giving certainty to future payment obligations. [See current market rates]
The ARM, as opposed to an FRM, calls for periodic adjustments to the interest rate after an initial teaser period. Thus, the amount of scheduled payments fluctuates from time to time and may rise significantly. The ARM provides the lender with periodic increases in its yield on the principal balance during periods of rising and high short-term interest rates. [See RPI e-book Real Estate Finance, Chapter 6]
Whether the buyer chooses an FRM or an ARM, they always have the option to shop around for the most advantageous financing options available to them.
A buyer who is shopping for a FRM, with help from the TA, uses the Borrower’s Mortgage Worksheet — For FRMs to determine their best FRM term. [See RPI Form 320]
Likewise, a buyer who is shopping for an ARM, along with their agent, uses the ARM Disclosure Worksheet to determine their best ARM term available across mortgage lenders. [See RPI Form 320-1]
ARM disclosure worksheet
A buyer, owner or their TA uses the ARM Disclosure Worksheet published by RPI when locating the most advantageous ARM financing available for funding the purchase or refinance of a property. The form allows the agent to provide the buyer or owner with a checklist for conducting an interview with mortgage lenders and noting for comparison the terms they offer on an ARM. [See RPI Form 320-1]
The contents of the ARM Disclosure Worksheet includes:
- the name of the loan plan, lender, loan officer and the property’s address [See RPI Form 320-1];
- the monthly interest rate adjustment, when the first adjustment occurs and the note ceiling rate, as well as the initial interest rate and how long it is in effect [See RPI Form 320-1 §§1 through 4];
- whether full amortization, interest only payments or buildup of the principal amount borrowed is a feature of the loan, and the terms [See RPI Form 320-1 §§5 through 7];
- whether a due-on-sale clause exists in the trust deed, and the conditions for consent to an assumption on a resale [See RPI Form 320-1 §8];
- whether a prepayment penalty exists and, when applicable, for what period it applies and the terms [See RPI Form 320-1 §9]; and
- whether the mortgage provides for convertibility to a fixed rate loan at the borrower’s election, and under what conditions. [See RPI Form 320-1 §10]
Once complete, the buyer or owner with their TA is able to determine whether they want to proceed with obtaining the mortgage on the terms offered or seek financing elsewhere.
Form navigation page created 09-2022.
Form last revised 2016.
Form-of-the-Week: Mortgage Worksheets — Forms 312, 320 and 320-1
Article: More ARMs suggest a riskier housing market
MLO Mentor: The adjustable-rate mortgage
MLO Mentor: The adjustable-rate mortgage, Part II
MLO Mentor: Different types of ARMs
Client Q&A: What’s the difference between an adjustable rate mortgage (ARM) and a fixed rate mortgage (FRM)?
Book: Real Estate Finance, Chapter 6: Adjustable rate mortgages
