More Financing Advice - A Follow-up to the Motley Fool Article

Seth Jayson from the Motley Fool, has written another article to follow-up his article from 8/26. In Jayson's first article, he talked about how 'creative' home financing could get buyers in trouble since often times, buyers weren't aware of the implications a "Pick Your Payment" or "Negatively Amortizing Loan" would have on their long-term financial future. He further went on to say how many lenders were hiding information from consumers in order to protect their booming business.

In Jayson's latest article, he highlights responses he received to his first article from several mortgage professionals who also don't like what they are seeing in the industry. Here is a quote from one of the lenders who responded to his article:

N.C., who works at a large bank, wrote:
"Last week I was discussing the "pick your payment" mortgage with a friend who related that her daughter and son-in-law had found out the hard way some years ago when they sold their $25,000 house and found that they now owed $40,000 to the mortgage company.  Luckily they had been in the house long enough for the equity to cover the loan and leave some for a down payment on a new house. This couple were in no way sophisticated investors and it came as a very unexpected surprise as they did not understand the contract they had signed.

This kind of mortgage has been around for a long time and yes, it is often offered to very unsophisticated, low-income buyers.  These are the very people who have no buffer between them and financial crisis. The fact that today's figures are ten times those in the example above does not change the basic scenario."

This example underscores the need for each and every consumer to FULLY understand what type of home financing they are using to buy their home. ARM loans, negatively amortizing loans, and all of the other various types of financing are OK for some people. Just make sure that you know exactly what you are getting into - not only in the short-term but also in the long-term. This other observation from Jayson's article highlights the fact that mortgage shoppers really need to pay more attention to what they are getting:

"...Unfortunately, many people are far more financially critical when they're shopping for an MP3 player or a dishwasher than when they're purchasing a home. It takes more than a little time and effort to figure and compare the true costs of a mortgage..."

Again, the bottom line here is to make sure you fully understand what you are getting into with your mortgage.

Comments

[Tino Buntic]

I can't believe lenders would set up this type of mortgage without explaining the consequences to consumers. They should require a a signed document explaining to the consumer exactly what they are getting into.