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Before You
Refinance...
by Lee Masterson
Before you
refinance your mortgage or even consider consolidating
your debts, the first step is to consider 'what's
in it for the person offering me this deal?'
In most cases, when people want to refinance, they call
either a mortgage broker or they visit their bank - but
there are other people who can (and will) tempt you into
considering a refinance or a debt consolidation.
Mortgage Brokers
--- If you called a mortgage broker, then you already
know that broker gets paid by the lending institution
(bank etc) to tell you about certain 'loan products'.
Being paid by a bank is usually a great motivator for
selling you something you might not even need. Ask lots
of questions - but specifically - ask your broker if each
bank/lender pays him the same amount of commission. If
you learn that one lender pays higher than another, then
you should be wondering if that broker is only offering
you deals from that lender in order to get paid more
money.
Your Local Bank
--- If you went to your local bank branch and asked the
teller, then you already know that teller is trained in
ways to make that branch more profits. Banks are
businesses, too! Knowing that the staff at bank branches
have sales targets to meet means that teller might be
trying to sell you a loan product you might not need.
More importantly, your own bank only has its own products
to sell you. They can't honestly compare their own
products to that of other banks.
Debt Consolidation Company
--- If you rang a Debt Consolidation Company, they would be
happy to tell you exactly how much money you can save by
consolidating all of your debts into one easy - and
cheaper - monthly payment. In many cases, even though
your monthly payment may be reduced, your total cost will
increase dramatically, meaning it will take you even
longer to get out of debt. Add to this the fact that the
debt consolidation company gets paid by helping you to
refinance and you are armed with the knowledge that they
only care about selling you their consolidation product
and getting paid - whether you really need it or not.
Real Estate Agent
--- If you spoke to a real estate agent and learned that
you could increase the value of your home by adding on a
new room and renovating the kitchen. All he says you need
to do is refinance your current mortgage. You already
know that agent is only after the sale of your home. He's
not even a little bit interested in seeing you pay off
your mortgage! Steer clear of people offering advice in
areas in which they have no qualifications. As the old
saying goes: "The most expensive advice is often
free advice".
Friends and Family
--- If your best friend told you about his or her new car
and new furniture and a great holiday - all by paying
lower monthly payments than she used to on her old
mortgage, you might be tempted to look into how she did
it! You already know what's in it for your friend - extra
money in
her pocket each month. But that doesn't mean it's going
to help you or your situation -
especially if it means paying back even more money over a
longer term.
You don't need an MBA online or a masters in
public administration to understand all this information
above, just do a little research before you do anything.
Always remember - your
financial situation is never the same as anyone else's.
Why would a loan product that helped your friend
necessarily be the right product for your
situation? Don't be tempted to try something just because
it worked for someone else.
So... remember to ask: "What's in it for
the person offering me the deal?" If
you can answer that question first, you'll have plenty of
ammunition against a slick sales pitch. You'll also be
much less likely to sign away your income for a further 30 years because the
sales promise sounded so easy that anyone could do it.
Lee
Masterson is a freelance writer from South Australia and
is one of the founders of MortgageLoanHints.com. She has
worked in banking and finance for more than 10 years and
now spends much of her time trying to help people control
and manage their debt. You can find more of Lee's
articles here: http://www.mortgageloanhints.com
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