What mortgage brokers don’t say may be much more important than what they do.

I got a letter the other day from a mortgage broker saying they had great news about my loan funded at a bank with which I have never done business. Their next claim was that they had evaluated my loan, and I was “pre-qualified” for a loan with a lower interest rate and a lower monthly payment.

I talked to someone the other day who fell for a pitch just like this. She got a loan with a lower monthly payment and a lower intrest rate, just as promised. But what they did not tell her was that it was a “negative amortization” loan. That is, her monthly payments were not enough to cover the interest due, and every month her principle was being increased by the shortfall.

Not only was her principle going up, but she then noticed that after one year her payment was going to shoot up. And it would increase every year for five years until it was almost double what she had started with — much more than she had been paying on her old loan!

She was planning to put her house on the market to get out of this horrid deal, but even then she was faced with an $11,000 prepayment peantly. She was boxed in. My advice to her: Look at Chapter 13 bankruptcy. It could cut her interest rate and let her keep her house.

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