Why Bad Credit People Pay Higher RatesWritten by Dave Czach
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Now let's flip perspective back to lending. In above investor example, replace words investor with lender, yield with interest rate and annuity with mortgage loan. Now we see a more clear picture. Borrower A who pays in full and on time every month is a low risk and receives lower interest rate because lender is relatively assured of receiving their money. Borrower B is a much higher risk and pays higher interest rate because lender is accepting chance they may not be repaid all their money. Now let's take it a step further. Imagine you had $100,000 to invest and had to choose between Borrower A and Borrower B. Which one would get your money? Moreover, why not loan $100,000 to Borrower B at same rate as Borrower A? Afterall, "B" borrowers often claim they no longer have same problems that caused their delinquency. "They turned a new leaf." Yet, they haven't proven it. They still pay their bills late. Would you take them at their word and give them same rate as Borrower A? A true investor would not. In conclusion, it's as simple as risk and opportunity. Contrary to divisive manipulation of data from media and organizations with an agenda, people with credit problems pay higher rates because they are a higher investment risk - period. It has nothing to do with race, religion, ethnicity or national origin. From my experience in mortgage business, loan officers only care about one color - green! © 2003 SonicPoint.com
Dave Czach has 12 years experience in the mortgage business plus a Bachelor's Degree in Real Estate. This article may be reprinted without compensation provided there are no changes whatsoever to the article, the copyright notice and the complete Editor's Note. Any reprinting or duplication without these conditions is copyright infringement.
| | Avoiding The Bi-Weekly Payment ScamWritten by Dave Czach
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The second method of self mortgage reduction is mysterious 13th payment. Establish a separate savings account to be used only for your mortgage reduction program. Each month deposit 1/12 of your regular monthly mortgage payment in account - use payroll deduction if necessary. At end of year, you have accumulated 13th payment (1/12 payment per month x 12 months). In December, you send two checks to your mortgage company. One for regular payment and one for 13th payment. Be sure to write and highlight memo section on your 13th payment check with "Apply directly to principle reduction only." Again follow-up with a certified letter within 3 months to verify 13th payment went straight to principle, not interest. In conclusion, Bi-Weekly Mortgage Reduction Plan is great and makes sense. However, since most lenders do not accept bi-weekly payments, clever entrepreneurs created massive bi-weekly escrow system. But this method can be costly and leave your perfect credit rating in hands of an independent, non-interested, 3rd party. If you can sleep at night with that decision, great. If not, do it yourself. © 2003 SonicPoint.com.
Editor's Note: Dave Czach has 12 years experience in the mortgage business and a Bachelor's Degree in Real Estate. He can be reached at dave@czach.com. This article may be reprinted without compensation provided there are no changes whatsoever to the article, the copyright notice and the complete Editor's Note. Any reprinting or duplication without these conditions is copyright infringement.
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