Don't Fall for the Latest Mortgage Scam

Hello Mr. Smith, this is your friendly banker. I wanted to let you know that we really appreciate your business through the years. We want to make you an offer that should really help your financial situation. We want to give you the opportunity to re-finance your mortgage and roll in your current high interest rate debt.

I am getting story after story about the aggressiveness of banks attempting to refinance loans. The pitch is simple and makes sense. They want to consolidate your debt into one big loan and then save you money each month by doing so.

The deal focuses completely on the monthly expense savings. The actual interest rate might be the same as your current mortgage. It might even increase. Of course if it does increase, it is still lower than the credit card debt – they say. What they don’t tell you is that due to the higher mortgage rate your overall interest cost will be greater down the road as well as lengthen the time that you remain in debt.

To add insult to injury, they also, in many cases, are charging excessive fees.

I saw one just the other day where they were offering the individual the same rate 6.25% as her current mortgage (which was .25% higher than the going rate). They were going to roll into the mortgage note her excess credit card debt which had an average interest rate of 5.99%. Best of all, they were going to stretch it back out to 30 years.

What was her benefit? She saved $100 a month.

What was the banks benefit? An increase in the overall interest they would receive. They also benefited from the additional fees that were charged up front.

What was the focus of the marketing pitch? It was all about the low payment. Unless you are in dire straights financially, you never want to make a decision based upon payment.

Banks have access to your credit files. They can see if you are a good risk, the amount of debt you have, and what you are paying. Then they can put together a deal and then cold call you with a sales pitch.

Banks shouldn’t be cold calling customers and pitching deals in the first place. They are and in many cases they are practicing predatory lending.

Predatory lending is defined as a proposed loan that does not benefit the customer long-term. I want to stress that not all banks are being this irresponsible. However, some of the major banks are on the phones pitching bad deals.

If you get the marketing pitch, just run the numbers side by side and you will see that it is probably the bank getting the better deal.