Questions & Answers
Q. Is it possible to get a mortgage for more than the value of the house, to consolidate all of our other bills?
A. It has not been commonly possible to finance more that 100% of the value of the house. However there are a few lenders who may lend as much as 90-100% of the value, while the rest of the debt might then be consolidated into a line of credit or other long term debt arrangement. This normally depends entirely on the credit worthiness of the borrower, but has been done before.
Q. What other financial services must I purchase from the lender in order to obtain a mortgage with favorable terms?
A. A large part of the lender’s profit comes from making available other financial services, such as mortgage life insurance, checking accounts, credit cards, and saving deposit boxes. Most lenders are instructed to flaunt all of their available products. Many will make it appear as if it is mandatory to transfer all your other business there.
Q. If rates drop during the term of my mortgage, what are my costs for early renewal?
A. Until just a few years ago, this question would not have occurred to most people. As rates dropped, financial institutions realized that their profits would be reduced drastically if the customer could just pay the mortgage off with a 3 month penalty. Then a new mortgage could be arranged at the lower rates, thereby saving huge amounts of interest. What few people realize is that only a few mortgage lenders have written in the mortgage documents a clause allowing for prepayment. Although most assumed they could pay off their mortgage with a 3 month penalty, they found out the hard way that the lender could charge the interest difference between the new and the old rate. Some even discovered that there was no clause allowing for early payout under any circumstances whatsoever. In fact, they had a "closed mortgage."
Q. Can I receive an amortization schedule before I sign?
A. The amortization schedule reveals the actual cost of borrowing over the long term. Most people are horrified when they discover the long term cost of borrowing.
Q. For whom is my banker working?
A. Many customers depend on their lender or banker to give them financial and tax advice. However, as long as the customer does not pay for the employee’s salary directly, the employee is not accountable to the customer and can say anything required by their employer. This means that lenders have a vested interest in making sure that their employer’s interests are protected before the customer’s.
Q. Who is the beneficiary of my mortgage life insurance?
A. Mortgage life insurance offered by mortgage lenders will usually pay off only the remaining principal owing in the event of a death. This might be only a fraction of the original amount borrowed. The lender is the beneficiary of the insurance proceeds. The lender can also cancel the life plan at any time without consulting the borrower because they are in fact the owner of the policy. A cost-effective alternative is to purchase cheap term insurance from a life insurance company.
Q. Why are renewal rates usually higher to existing clients than rates offered to the general public?
A. Almost without exception a mortgage lender will send out a renewal agreement at the end of the term promoting their posted rate. However, often at the same time, the lender is offering discounted rates to the general public in the hopes of attracting new business. Many customers will not ask the lender at the time of renewal if the rate offered in the renewal agreement is the absolute best rate available. It should stand to reason that the existing customer should get the preferred rate, but unfortunately, this is frequently not the case.
Q. Will bi-weekly payments really save me money?
A. Almost all lenders offer a bi-weekly payment option. What they don’t tell you is that it causes you to pay one extra mortgage payment per year. Instead, you can either spread this extra payment over the year, or use your pre-payment privilege and make one extra payment at the end of the year. If it were true that by paying more often we could somehow magically reduce our principal, then we should pay at least every day, if not by the hour.
Q. Will you still do business with me if I don’t pay the renewal fee?
A. Most mortgage lenders charge a renewal fee, often around $100, upon maturity of the term. On the other hand they almost never charge a new client to start up a mortgage, and will even pay to get the new business by giving something away. To them it is a calculated risk that the client will just sign the renewal agreement, pay the fee, and not bother to shop around for a new arrangement. Most customers don’t realize that this fee is part of the mortgage lender’s efforts to collect extra revenue.
