We have been warning clients for years about bank collateral mortgages but now we are seeing the effects on people’s lives first hand. Collateral damage is a term that means damage that is unexpected, and is no fault of yours.
“I had absolutely no idea the bank had tied up $200,000 of our equity,” said Tina not being told the bank was going to register our mortgage above the value of our property. They were told nothing about the Collateral Mortgage only that they could always borrow what they needed in future without a lawyer. Folks this is the kind of deception banks use on innocent consumers.
Tina is a high earner making almost $100K as a general manager for a Guelph firm. Her problems began when her husband left his $90K job to pursue self employment. The jobs for him were lining up but it’s tough in the beginning of going out on your own especially when some people don’t pay on time. Their mortgage with their bank was only $350,000 but it included a $50K line of credit. So as things got tighter the bank rolled out a line of credit, and another and another all at higher and higher rates. When she asked for one loan to pay off the credit, the bank offered her a 10% loan with payments she could not afford. To make matters worse, a week later her Visa was increased to $30K at 18% interest. So finally, she went to a mortgage broker in Guelph. The Guelph broker arranged for a 2nd private mortgage for a $110K at 14% interest. Unfortunately, the broker was new and didn’t realize the bank had collateralized most of the value in the property and the deal fell apart. So that’s where we came in. We had never seen one bank roll out so many credit facilities to one couple. Honestly, we felt sick to our stomach. This poor couple would have had to sell their home if we didn’t find a solution and fast.
No prime mortgage lender would touch these clients with all this debt and Tina’s pristine credit had fallen below the 600 mark where lenders will approve the mortgage. So we were able to find a lender who would charge slightly higher rates in order to get them out of this mess. By breaking the first collateral mortgage we were able to get a $570,000 first mortgage to 85% of the value of their home. Tina’s payments are now affordable at $3,000 per month. She had been paying double that with three credit lines and two credit cards and they were drowning. In a year, we will able to move Tina’s back into a prime mortgage at the best rates out there.
So moral of the story, is be careful people. Homeowners are not being told their mortgage is collateralized until it’s too late. This product is good for seasoned investors not everyday homeowners, who do not know the potential pitfalls.
If you are drowning in debt, don’t give up. Give us a call. There is always a solution and we always work hard to find the best one.