LIVING OFF DIVIDENDS & PASSIVE INCOME

Here’s a must read article from BusinessWeek on Nightmare Loans.

Jennifer and Eric Hinz of Somerset, Wis., are feeling the squeeze. They refinanced out of a 5.25% fixed-rate, 30-year loan in June, 2005, and into an option ARM with a 1% teaser rate from Indymac Bank. The $1,483 payment for their original mortgage dropped to as low as $747 with the new option ARM. They say they had no idea when they signed up, however, that the low payment adds $600 in deferred interest to their balance every month. Worse, they thought the 1% would last three years, but they’re already paying 7.68%. “What reasonable human being would ever knowingly give up a 5.25% fixed-rate for what we’re getting now?” says Eric, 36, who works in commercial construction. Refinancing is out because they can’t afford the $15,000 or so in fees. “I’m paying more, and the interest is just going up and up and up,” says Jennifer, 34, a stay-at-home mom. “I feel like we got totally screwed.” They say their mortgage broker has stopped returning their phone calls. Indymac declined to comment on the loan’s specifics.

The problem, of course, is that many brokers care more about commissions than customers. They use aggressive sales tactics, harping on the minimum payment on an option ARM and neglecting to mention the future implications. Some even imply verbally that temporary teaser rates of 1% to 2% are permanent, even though the fine print says otherwise. It’s easy to confuse borrowers with option ARM numbers. A recent Federal Reserve study showed that one in four homeowners is mystified by basic adjustable-rate loans. Add multiple payment options into the mix, and the mortgage game can be utterly baffling.

Billy and Carolyn Shaw are among the growing ranks of borrowers who have taken out loans they say they didn’t understand. The retired couple from the Salinas (Calif.) area needed to tap about $50,000 in equity from their $385,000 home to cover mounting expenses. Billy, 66, a retired mechanic, has diabetes. Carolyn, 61, has been caring for her grandchildren, 10-year-old twins, since her daughter’s death in 2000. The Shaws have a fixed income of $3,000 a month that will fall by about $1,000 in November after Billy’s disability benefits run out. Their new loan’s minimum payment of about $1,413 is manageable so far, but the fully amortized amount of about $3,329 is out of the question. In a little over a year, they’ve added some $8,500 to their loan balance and now face a big reset if they continue to pay only the minimum. “We didn’t totally understand what was taking place,” says Carolyn. “You have to pay attention. We didn’t, and we’re really stuck here.” The Shaws’ lender, Golden West, says it routinely calls customers to ask them if they are happy and understand their mortgage loan.

No one will care for your finances like you do. If you don’t understand the loan process and how ARMs work, you owe it to yourself to find out. Ignorance is a sure path to finacial distress.

• Why I Love Payday Loans This isn't going to be some post about why I think payday loans are a great investment. I've never gotten a payday loan myself, so I'm not talking about my personal user experience either. I'm not even going to discuss whether payday loans are good or bad. What I'm talking......
• Escaping The Rat Race Here's another inspiring story on getting out of the rat race.How I escaped the rat raceCarole Dobson as told to Duncan HoodFrom the May 2006 issue of MoneySense magazineI used to work full time at a stressful job making a six-figure salary. Then, about 10 years ago, I started planning......
• More Clarity On The Appraisal I found out why they've charged us $850 for the appraisal. Apparently since Jan 1st they're requiring all loans to have 2 appraisals. That sounds like a bunch of crap but atleast we know why its so high. Anyway, the builder wasn't willing to extend the close of escrow so......

• Create a "Dream Budget" for Extra Motivation One of the reasons the idea of budgeting is depressing for many of us is because it is the point in time each month where we realize we don't have a lot of breathing room. There is simply no disposable income after the mortgage, the car payment, the credit card......
• Savings Goals In The New Year And Beyond Making just one goal with regards to your savings can make a real difference.  Here are savings goals which can help you have a financially secure and less financially stressful 2010, so know your situation and choose one which best suits you. Why You Need a Savings Goal Goals are......
• Don't Rent, Sale Your Investment Property with Seller Financing As an investor, the idea investment is one that I can buy, sale, and make a modest profit with as minimum hassle as possible.  I imagine that this idea is basic with all investors.  Yet I don't understand why more and more investors are not taking advantage of the current market by......

[All content is copyright of Living Off Dividends & Passive Income]

Random Posts

• November 2, 2007 -- How To Get Free Music
• March 8, 2009 -- Bear fund managers warn against short sales
• December 25, 2007 -- What You Should Know about Mutual Funds
• May 9, 2006 -- Vonage Is Going IPO And a Cheaper Alternative
• September 14, 2009 -- What You Need To Know About Being Sued
• October 10, 2006 -- Tips To Happy
• March 14, 2008 -- Gold Cracks $1000/Oz: Investing For A Recession