Getting A New Mortgage

Category: Finance, Mortgages.

Getting a new mortgage? Mortgage brokers( even at banks) get paid on commission.

Watch Out! As interest rates rise, they must become more creative to make a living. Don' t be one of them! Many are honest, but there's plenty that won' t blink an eye at taking advantage of uninformed consumers. In my previous two articles, I' ve shared how and when Interest- Only, Option- ARM and Reverse Mortgages should and shouldn' t be used. Here are some true stories that clearly illustrate that. I' ve warned readers to be very careful when refinancing or purchasing a mortgage because the person you are dealing with may not have your best interest at heart.

David shares, "A licensed securities dealer has proposed that I take$ 300, 000 in equity out of my house before home values plummet and invest the entire amount in an" investment grade" life insurance policy, specifically an Equity- Indexed Universal Life( EIUL) policy. " He described in detail how this would allow any future growth, loans and death- benefits to be tax- free. The advisor had shown him that he could pay off his house after 10 years with the investment, with money left over. He also listed some of the negatives, such as the high cost of the insurance policy and other expenses. He closed by saying, "It sounds almost too good to be true. It doesn' t make sense to tap your home's equity for any investment. Is this program too risky, to warrant investing, or too expensive my home equity? " Of course it's too good to be true!

His home had probably been the best investment he had ever had. Don' t put that at risk. He was earning a guaranteed 6% or so( the interest rate on your mortgage) while increasing his equity at the same time. This is just one of the new schemes developed by agents to keep the commission dollars flowing. The bulk of most people's investable assets are in a 401( k) or other company retirement program. People like David, who are not retired, don' t have a lot of investable assets for' advisors' to go after.

The' pot of gold' that pre- retirees do have is the equity in their home. This scheme allows agents/ advisors to tap that money when they otherwise couldn' t. Because homes have appreciated, many have significant equity. In this specific case, the agent could be making$ 85, 000 off of this transaction! To be frank, this borders on a scam and is not consistent with any good financial planning principles. No wonder it sounded like such a good idea! This' advisor'should lose his/ her license. 'Av' wrote about a horror story involving her parents' purchase of an Option- ARM mortgage from an unscrupulous mortgage broker.

He laid out all the details, including the most intriguing part: an interest rate of only 65% . To be safe, her parents included other family members in the talks with the mortgage broker. He assured them the payments would only be$ 300 per month. Based on his assurances they took the mortgage. They couldn' t believe it and asked him several times to verify that information. Then the first payment coupon came. I called. and got the run around.

She says, "Imagine my shock when( the real interest rate) was 6% . I was told the payment hadn' t gone up. " The true amount due just to cover the interest was considerably more then the$ 300 they expected. Before the sale, the mortgage broker had been so trustworthy and always quickly returned their calls. By paying just the$ 300 their amount borrowed would continue to increase. Now he gave them the cold shoulder. It must be in writing.

When they finally reached him, he said" You' ve signed the papers and that's that. " Clearly frustrated, she says, "So I am paying about 6% interest on a loan that 4 adults heard was only going to be 65% .we were played the fool big time and I want to warn other people. " Don' t accept any mortgage broker or other financial advisors' word on something. If you don' t understand the contract, take it to a lawyer or a Certified Financial Planner who doesn' t have an interest in the transaction for an objective point of view. Be careful so you don' t become the next horror story.