| Getting a new mortgage? Watch Out! Mortgage | | | | have significant equity. This scheme allows agents |
| brokers (even at banks) get paid on commission. As | | | | advisors to tap that money when they otherwise |
| interest rates rise, they must become more creative to | | | | couldn't. |
| make a living. Many are honest, but there's plenty that | | | | In this specific case, the agent could be making |
| won't blink an eye at taking advantage of uninformed | | | | $85,000 off of this transaction! No wonder it sounded |
| consumers. Don't be one of them! | | | | like such a good idea! To be frank, this borders on a |
| In my previous two articles, I've shared how and when | | | | scam and is not consistent with any good financial |
| Interest-Only, Option-ARM and Reverse Mortgages | | | | planning principles. This 'advisor' should lose his/her |
| should and shouldn't be used. I've warned readers to | | | | license. |
| be very careful when refinancing or purchasing a | | | | 'Av' wrote about a horror story involving her parents' |
| mortgage because the person you are dealing with | | | | purchase of an Option-ARM mortgage from an |
| may not have your best interest at heart. Here are | | | | unscrupulous mortgage broker. To be safe, her |
| some true stories that clearly illustrate that. | | | | parents included other family members in the talks with |
| David shares, "A licensed securities dealer has | | | | the mortgage broker. He laid out all the details, including |
| proposed that I take $300,000 in equity out of my | | | | the most intriguing part: an interest rate of only 1.65%. |
| house before home values plummet and invest the | | | | He assured them the payments would only be $300 |
| entire amount in an "investment grade" life insurance | | | | per month. They couldn't believe it and asked him |
| policy, specifically an Equity-Indexed Universal Life | | | | several times to verify that information. Based on his |
| (EIUL) policy." | | | | assurances they took the mortgage. |
| He described in detail how this would allow any future | | | | Then the first payment coupon came. She says, |
| growth, loans and death-benefits to be tax-free. He | | | | "Imagine my shock when (the real interest rate) was |
| also listed some of the negatives, such as the high | | | | 5.6%. I called...and got the run around. I was told the |
| cost of the insurance policy and other expenses. The | | | | payment hadn't gone up." The true amount due just to |
| advisor had shown him that he could pay off his house | | | | cover the interest was considerably more then the |
| after 10 years with the investment, with money left | | | | $300 they expected. By paying just the $300 their |
| over. | | | | amount borrowed would continue to increase. |
| He closed by saying, "It sounds almost too good to be | | | | Before the sale, the mortgage broker had been so |
| true. Is this program too risky, or too expensive, to | | | | trustworthy and always quickly returned their calls. |
| warrant investing my home equity?" | | | | Now he gave them the cold shoulder. When they |
| Of course it's too good to be true! It doesn't make | | | | finally reached him, he said "You've signed the papers |
| sense to tap your home's equity for any investment. | | | | and that's that." |
| His home had probably been the best investment he | | | | Clearly frustrated, she says, "So I am paying about 6% |
| had ever had. He was earning a guaranteed 6% or so | | | | interest on a loan that 4 adults heard was only going |
| (the interest rate on your mortgage) while increasing | | | | to be 1.65%...we were played the fool big time and I |
| his equity at the same time. Don't put that at risk. | | | | want to warn other people." |
| This is just one of the new schemes developed by | | | | Don't accept any mortgage broker or other financial |
| agents to keep the commission dollars flowing. People | | | | advisors' word on something. It must be in writing. If |
| like David, who are not retired, don't have a lot of | | | | you don't understand the contract, take it to a lawyer |
| investable assets for 'advisors' to go after. The bulk of | | | | or a Certified Financial Planner who doesn't have an |
| most people's investable assets are in a 401(k) or | | | | interest in the transaction for an objective point of |
| other company retirement program. | | | | view. Be careful so you don't become the next horror |
| The 'pot of gold' that pre-retirees do have is the equity | | | | story. |
| in their home. Because homes have appreciated, many | | | | |