Financing Over-Leveraged Homeowners
By Dan Harkey
Today, I am reporting on the financial journey of a couple who could be considered financing leverage kings and queens. They bought their home a decade ago, and as its value increased, they engaged in a risky move-repeated refinancing, to cover their living expenses.
The strategy involved selecting an adjustable-rate loan with an initial fixed-rate teaser low payment and refinancing at the end of the teaser period. When the adjustment from fixed to the ARM with an index caused their payments to go up, the last time around, they could not afford it.
This situation is a stark warning about the potential risks of repeated refinancing. It also highlights the crucial lesson of building equity in property, a lesson that cannot be overstated.
Home prices in many areas have more than doubled since 2010, rising by 50% in the last ten years. There are occasional blips where values are flat or go down.
Consider this scenario: This homeowner defaults because their property lacks equity to refinance for the umpteenth time. ?Without equity, they can't refinance or secure a second-position loan. This situation is a powerful reminder of the tangible financial pitfalls of not building equity in your property. They will also be paying capital gains taxes on lost equity that they lived on for years, a struggle many homeowners can relate to.
While the homeowners may have blamed the last mortgage broker, this situation underscores the importance of personal responsibility in meticulous financial planning and decision-making. It also highlights the risks for a mortgage broker participating in the refinance of this kind of irresponsible borrower. We can prevent such situations by emphasizing personal financial responsibility and controlling our economic well-being.
A plaintiff borrower may accuse the mortgage broker of breach of fiduciary duty and negligent misrepresentation. However, they may not acknowledge their irresponsibility. This is a reminder of the potential legal consequences of irresponsible borrowing and the importance of mindful financial decisions.
领英推荐
Thank you
Dan Harkey
Educator & Private Money Lending Consultant
949 533 8315??? [email protected]
Visit www.danharkey.com
?
?
?