To help demystify the mortgage process, the federal government is giving the much-maligned Good Faith Estimate document a makeover. Effective January 1, 2010, the current, 2-page form will be replaced by a new, easier-to-understand version, spanning 3 pages. The biggest strength of the new Good Faith Estimate is that it uses everyday English to explain how the mortgage works. For example, in one section titled "Loan Summary", the Good Faith Estimate specifically answers:
- What is your interest rate?
- Can your interest rate rise?
- Does your loan have a prepayment penalty?
Using today's disclosures, the answers are spread across 3 separate forms.
In addition, the new-look Good Faith Estimate identifies what charges are legally allowed to be charged at the time of settlement, and how a mortgage applicant can opt for higher fees in exchange for a lower mortgage rate, and vice versa.
These educational elements are lacking from the current model.
But, for all of its clarity, the Good Faith Estimate doesn't address the issue of suitability. As in, is this the right loan for the right borrower? The new Good Faith Estimate won't prevent homeowners from choosing "bad loans" -- it will only educate them about the loan's facts.
For suitable advice -- as always -- talk with a trusted mortgage professional who will both listen to your needs and help you make plans for them. Getting the "best terms" on an unsuitable loan can be far worse than getting great terms on a loan that fits.
