Say you’ve got a son or daughter who just got married and the happy couple comes over to tell you the great news about their new house search. They explain that they have a great real estate broker who has recommended a particular loan broker to help with some great financing. They met with the loan broker who then gave them some great news.
The loan broker could get them ARM financing (an ACTUAL Rate Mortgage) for 2 points under the current standard rate and that rate would be the Actual Rate rate for the life of the Mortgage. It’s ARM financing. Your kids are really excited about this. After all, if they don’t get the ARM mortgage, they’ll have to get a FIXED Rate Mortgage and face changing and rising interest rates all the time because the interest rate on this sort of loan would change by a FIXED amount higher than the current standard interest rate.
What would you tell them?
(image courtest of TonyWatson.net)
Suppose you tell them the truth: That these mortgages work in precisely the opposite way than they have been told by the Loan Broker. But when you tell them that, their reply is “perhaps the Loan Broker was telling them that to make them feel better about what they could afford.” Or their reply was essentially that “well, you’re just my parent. He (or she) is a Loan Broker knows what he/she is talking about.” Or their reply was “ok, I believe you. But I can work with this Loan Broker and I can educate him.”
What then would you tell these two young people that you care deeply about?
How many of the fundamental facts does a Loan Broker have to get wrong before you tell your kids that they absolutely, positively should NOT do business with him?
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The problem is NOT that you can’t straighten your kids out about what these types of interest rates actual are. That’s easy enough to do.
No. The problem is that, if the loan broker, for WHATEVER reason (ignorance, incompetence, or corruption), can’t get the facts right on the basic concepts of his/her profession, how can you be sure they will get the more subtle, but extremely important, details of the loan contract right?
The truth is, you can’t be sure and will need to watch your back every step of the way.
Are you willing to bet (or support your kids in betting) a lot of money that the loan broker won’t make another mistake of significance that you don’t have the expertise to judge before a final loan commitment is made?
Maybe the loan broker won’t make another mistake and everything will work out fine. Absolutely. It’s highly probable that everything will work out fine.
But are you willing to bet your life on it?
How much of the fundamental facts about heart disease do our doctors have to get wrong before it’s clear they’ve crossed the line and we decide that we’ll take what we can get from them but meanwhile we’re NOT willing to bet our lives on them and we quietly begin to search for someone better?