Mortgage Insurance, also known as lenders Mortgage insurance Lmi for short, is the most scam out there, and interestingly no one is complaining yet. Why?
I have asked this ask hundreds of times to students in my real estate speculation classes, and also to lowly home buyers. Invariably none of them certainly understand what this insurance is for. The majority believe it is there to protect them in case they default on their mortgage repayments, due to illness or job loss, yet others have no idea. They just pay it, with out question, because they are desperate to get into property, and the bank/lender has said that they must. When these same habitancy ask for some guidance they are told the same thing "you have to pay it? Again I ask the ask Why?
Mortgage
Let me put it other way, say I was to ask you to pay my insurance for me to protect me from something that you may do some time in the future, and to protect me from my own stupidity! Would you do that? I can just hear you shout the write back "Hell No." Yet this is what the bank is asking you to do pay their insurance to protect them against some misfortune in the future, such as you defaulting on the loan. Interestingly enough you and the majority of borrowers do just that without question, every time a mortgage is entered into. When is enough, enough?
As a company owner it would be overwhelming if I could force my customers to insure me against my bad company decisions or for that matter any bad decision that I make which could cost me financially. Now that would be great, right? Yet if a company owner tried doing just that they would have customers walk and governments legislate to forestall this from happening, so why have the banks and/ lenders got away with this rort?
The surmise is that we as borrowers have not complained and better yet walked, forcing the banks to reassess and be fairer. Lets look at this scam closer, When a man wants to borrow money to buy an speculation asset or their own home the banks ask them to provide copious amounts of facts together with how much they earn and how much of a deposit they have available, the banks also look at the borrowers reputation history, and their savings history, the subject asset is then valued by the banks valuer,(something else that you as the borrower pay for, and are not told what the valuation came in at let alone given a copy of the valuation, yet you have paid for it!) the bank will then only lend up to a maximum of 90% of that valuation, you will have to put in the balance in hard cash.
Now here is the kicker the bank lends you say 9,000.00 they will charge you approx 00.00 in mortgage insurance premiums, so they can pay their insurance, something that they have to do as a general part of doing business. Remember banks are in the company of lending money, which is they buy money for a price and resell it to you at a higher price this inequity is called the margin and varies depending on your assessed risk, lower risk should be a lower margin. As lending money is the banks company if we the buyer did not borrow money from them or use their reputation card facilities the bank would be out of company in the blink of an eye.
As customers we attack a hard agreement when dealing with any other vendors, demanding the best potential deal, yet when we deal with the banks we take what ever the banks determine to dish up to us on any given day, yes we may grumble, but we never ever take performance and ask better, tiny wonder they get away charging us for their insurances.
It is a myth that the mortgage insurance is their to protect you should you default. This is certainly untrue, the reality is it protects the bank, and if there is any short fall the mortgage insurers will then turn round and sue you for the inequity plus all costs. Go Figure.
If you want to top up the loan; say you want to use the equity to buy an speculation property, the banks will recharge you mortgage insurance (that is the full amount on the top up plus the new loan for the new property) again not just pro rata the whole lot. What a scam!
Some thing else the banks won't tell you about mortgage insurance, is that you are entitled to a reimbursement of the selected when you pay out the loan early, and for those that are savvy enough to find out the banks make life extremely difficult, coming up with all sorts of excuses as to why no reimbursement is due. Never ever give up, keep writing and if necessary take it to the top level possible. The sooner the buyer makes a lot of fuss and noise the sooner the playing field for home borrowers will become level.
The crazy thing is that you can go out and buy a luxury motor car for say 5,000.00 and your loan will be popular ,favorite with a minimum of fuss (provided you can afford the repayments) and at the same interest rate that you would have been paying on your home loan, and guess what no Mortgage Insurance! What is the difference, certainly as we are led to believe Real estate is a better speculation than a motor car? So why the bullying, and difficulty when you want to buy a so called safe and stable investment? Like Real estate?
Tip: Ask questions from your bank ask That you see the valuations and the surmise for the mortgage insurance. Refuse to pay the mortgage insurance and amend the documents as applicable, ( yes you can amend the mortgage documents to suit you, it is not all up to the bank, get a good attorney that knows what they are about)and be prepared to walk away.
I refused and still got my loans, so can you. Never ever give up or allow your self to be bullied by banks.
Myth on Mortgage assurance Busted - Mortgage assurance - A weighty Ripoff!
