Mortgage Commitment – is this Reasonable or Completely Wrong?
I wanted to ask whether the following mortgage commitment I received from a small bank is reasonable or completely wrong(?)
The mortgage commitment includes the following statement: “the loan balance upon maturity (5 years), with ALL INTEREST, charges and accessories, shall become due and payable on that date…. the mortgage will become due and payable in 60 months at which time the borrower, if all payments are made on the due date and any prepayment privilege is not used, will owe $ 155,000″ (I rounded).
However, the loan amount (principal) is only $ 120,000! My question is is this normal that after 5 years the bank has calculated I will owe $ 155,000??
I understand how they calculated it – they added the present value of all future interest payments (30 years) to the amount I will owe. However, is this standard meaning most banks do it this way or is it completely wrong to the extent I should not take their loan?
What happens after 5 years if I want to continue with a different bank??
Lastly, in another section in the contract they mentioned” the mortgage is not renewable (after 5 years) on the same terms as described above (referring to interest and amortization). Therefore, on one hand if I take their mortgage it will never make sense to switch to a different bank after the 5 years term due to a HUGE penalty – will owe $ 155K where initial loan is only $ 120K. On the other hand if I stay with them they can now (after 5 years) charge any interest they want as they mentioned above.
I guess the bottom line is if this is a common/standard practice and most banks do it this way I will take the mortgage however if this is completely wrong/unreasonable I will not.
Is it even LEGAL for a bank to charge future interest (25 years interest) at the end of a term (5 years)? Don’t they have to follow certain rules/regulations too?
I would appreciate any advice on the topic.
THANKS & REGARDS,
PS. it’s a variable rate mortgage and the monthly payments include interest and principal