What a hot summer.
Of late I have found myself trying to explain collateral charges to people and what the pros and cons of them are. The main reason is that one of the big 5 banks registers all loans against homes as collateral charges and not as a mortgage. (There are a range of legal differences.) The bank is obviously selling the pros of the deal. In an effort to win business I also point out the cons, but obviously I can sell a collateral charge type loan as well. The trick is whether it is right for the client.
The main "trick," is that with a traditional mortgage when the term is up a borrower can shop and switch lenders and the main cost is about $200-300, processing fee that the new lender may even pay. It is quick easy and pretty low to no cost. If a borrower wants to move a collateral charge, for the most part they will find it is treated as a refinancing deal, so there will be things like legal costs, possible appraisal costs and a few added hassles. Totally doable, but the thing is that many people will see this as a deterrent and stay put. Do you think they will be offered the best deal at renewal with such a higher barrier to exit?
In an effort to educate I have added a PowerPoint Presentation to my linked in site. http://www.linkedin.com/in/andreameynell that tries to explain some of the basics about mortgages. I hope you will stop buy and go through it.
I will also now be attempting to post to the blog a little more often than every other year as I think I have now found better ways to share it than having it hang out unconnected in cyber space. Let me know what you think after a few more posts. In the meantime if there are any burning questions or issues you have around mortgages, or if there are some real estate questions I might be able to help you with, remember I am not licensed for real estate, I will certainly give you the best information I can or point you to a great resource.
