John had a nice low interest mortgage, but he wanted to add an addition on to his home, which he could rent out for some extra income. He was a building contractor and planned to do the work himself. So far, so good. But it was still a costly project in materials alone, so he refinanced his house to its full market value, borrowing an extra $40,000 above what he owed on his current loan to pay for the project, borrowing a total of $245,000.
“The brokers I was dealing with were offering a fixed rate 5 percent loan,” John said. “The day before we were set to close, a broker from the company called to reschedule it. They had me go to their office at midnight to sign the papers.”
Now, let me just pause the story, and say that if a business deal needs to be consummated at midnight, it’s probably not a good sign. Let’s continue.
“John, who was this company that was doing business at midnight?” I asked him.
“I had only spoken to them over the phone. When I showed up at midnight, their office was in a storefront in a seedy part of town. Then they told me they couldn’t get me the fixed rate mortgage; they could only get me an adjustable rate mortgage. I was all set to start work on the addition, and I even ordered some of the materials so I went through with it.”
Now, three years later, his payments have doubled because of the screwy loan terms. With his own contracting business not doing well, he is probably going to lose the house.
“I should have known better,” he said. “It’s my fault.”
That one really made me think. This guy was a building contractor from Brooklyn. And he wasn’t streetsmart enough to walk away from a mortgage loan being made at midnight, in a storefront with the terms changed at the last minute?
Now, forget the fact it was midnight in a seedy part of town. Anytime, and I mean anytime, you find the terms of a potential business transaction being changed on you at the last minute, back out of the deal. Do not fall for the old bait-and-switch.