Case 18- Pay Off the Second Mortgage on your Kathleen House in Thirty Days
From 2000 to 2008, the home mortgage industry offered anything they could to make mortgages and sell loans. Our next story is about one of those loans that caught up with the borrower.
Banks were making loans that covered 100% of the purchase price of the house. Since anyone could get a loan during that time, the housing market was climbing faster than most could keep up. The banks were offering an “80/20” loan which financed the whole house for 80% on the first mortgage and 20% on a second. Our client got swept up in one of these offers.
The house problem
The loan was great for them because they could afford it at the time and they did not come out of pocket to get the house of their dreams. The mortgage however, had terms that have cost them a lot of money over time. The first loan has been adjustable at 1.5% every six months for all thirty (30) years and the second was a 15 year loan with a high interest rate and a balloon payment due…. Now.
When our client called, they had 30 days to pay off the second loan. After running the number, we learned that if the lender had made the loan with a more reasonable interest rate (market rate at the time was 7.5%, this loan was 11%) and the same payments he was currently making, it would have been paid off by now.
With the clock ticking on the second mortgage, we had very little time to do much. The client’s credit was bad, due to hospital visits and not being home to make the payments. The only way to fix this is to pay off the note that is coming due in thirty days or talk the bank into an extension. If you have ever talked to the bank, it usually does not work in your favor.
After a long conversation with our client, we were able to design a game plan to pay off the second loan. They were not able to stay in the house, but we can save their credit and help them find a more affordable place in the same area.
We are working on buying the house in the next ten days to save his credit from a foreclosure. After that we are setting him up with a credit repair company that can help him get his credit back up.
What is the lesson here?
Always check the terms and conditions against your personal finances. If you don’t have a plan to pay off the loan faster then agreed, don’t sign. Our client didn’t know about the balloon payment on the second mortgage, even though the papers had his signature on them. Make sure what you agree to is what is stated in the closing documents. Don’t be afraid to walk away.