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.
— 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.
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…