I have seen this slogan in action too many times in my field of work, the mortgage industry, to allow anyone else to fall prey to what is so often simple errors of judgment made by some of my clients. I am going to expose these little mistakes made by some so you can learn from them without having to make them yourselves.
I had a couple as clients for years that carried a balance of approx. $100,000 in credit cards.
Every time they refinanced, I insisted they pay some of them off and the husband always refused except to allow the pay off about $5000 of the debt. They had the equity to do it and the monthly savings as a result would have been unbelievable--still he refused. One day, he confided in me that if he paid off the credit cards, he was afraid his wife would run them up again. I informed him that his analysis was incorrect because with the huge interest they were paying on their credit cards, he was running them up again himself. I did, of course, never convince him and to my knowledge, they still are carrying their $100,000 in credit cards.
Mortgage insurance is required when your loan to value is greater than 80%. It is paid for by the borrower for the benefit of the lender in case of default thus guaranteeing that the lender is insured for the portion over 80%. Several stories come to mind. The first is a couple who bought a house with a small amount down and was forced to take out mortgage insurance. After several years, they had sufficient equity to rid themselves of the insurance but instead took out a second mortgage to get some cash. They never informed the mortgage insurance company they had more than 20% equity and so they were paying on a first, on the now unnecessary mortgage insurance, and on the new second mortgage as well. The mortgage insurance company will not automatically cancel the insurance unless you inform them, and then they still might refuse until you get them an appraisal showing the equity. I refinanced the entire amount and cancelled the mortgage insurance.
The second instance was a young couple who came to me with a new purchase they wanted to refinance. They had a first and second mortgage that equaled 100% as they bought the house with nothing down. The use of a first and a second negates the need for mortgage insurance. They also were issued a policy of mortgage insurance and were charged a monthly amount for the premium. I still cannot figure out how that could possibly be done. My only conclusion is the lender is acting as a mortgage insurance company and collecting the premium. We are just beginning the refinance, and I probably will be able to get to the bottom of this mystery--I'll let you know when I have the answer.
Roger Schlesinger's Mortgage Minute is heard on hundreds of radio stations and daily on the Hugh Hewitt radio show and Michael Medved shows. Roger interacts with his hosts and explores the complicated financial markets in order to enlighten his listeners and direct them along their own unique road to financial freedom.