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