Leverage Kings and Queens

By Dan Harkey, Educator & Private Money Lending Consultant

949 533 8315??? [email protected] Visit www.danharkey.com

Our focus today is on a couple who could be seen as leverage kings and queens who purchased their home a decade ago.? As the value of their home increased, they adopted a strategy of repeated refinancing to cover their living expenses. This involved choosing an adjustable-rate loan with an initial fixed-rate teaser low payment and repeating the process at the end of the teaser low payment period. However, once the adjustment to a market rate payment occurred, they could not afford the payment. This situation highlights the potential risks of repeated refinancing and the importance of building equity in property.

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 the scenario of a homeowner who defaults because their property has no equity above their loan. With no equity, they cannot refinance or obtain a second-position loan. This situation is a stark reminder of the urgency of building equity in your property to avoid such financial pitfalls. It's a clear message that our homes are not just places to live, but also valuable assets that can secure our financial future.

It's crucial to understand the lesson from the couple's untimely default. They may have blamed the last mortgage broker involved, but this situation underscores the importance of personal responsibility in careful financial planning and decision-making. It also highlights the risks for a mortgage broker participating in the refinance of this kind of irresponsible borrower. By taking personal financial responsibility, we can avoid such situations and maintain control over our financial well-being.

The plaintiff borrowers accused the mortgage broker of breach of fiduciary duty and negligent misrepresentation but did not mention individual accountability and personal responsibility for their actions. That is the way legal maneuvers and the court system work.

Thank you

Dan Harkey

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