Alternatives to a Second Mortgage
New consumer education programs are bringing to light some startling ‘play on words’ that financial institutions have used to sell mortgages. In fact, many financial institutions offer incentive plans for employees who sell a mortgage. Moira Haynes of Citizens Advice states, “We have concerns that this is not an isolated case. There are potentially problems across the industry.”
Other sales tactics that would entice a homeowner to select a mortgage over a loan are the ‘No Closing Fee’ mortgages. This is in fact a misrepresentation. The consumer does pay the closing fee with their regular payments through the life of the mortgage. Most institutions charge this in the form of an increased interest rate. In fact, when many consumers sit down and do the math, their monthly installment far exceeds what their closing cost would have.
There are other subtle misconceptions most loan officers do not explain to consumers. One is the mortgage insurance. This provides a £66 million windfall for banks. The mortgage insurance is often attached to the monthly mortgage payments, incurring interest along with the money borrowed. In the end, the homeowner paid far more for the house insurance than the insurance was worth.
This is leading to new venues and trends of debt consolidation and debt relief for UK consumers. Many of them are opting for personal and secured loans instead of a mortgage. This may cause a short-term financial hardship, but offers many long-term benefits.
This information is being exposed at a vital time. As many UK homeowners are faced with a short-fall in their endowments, they are searching for ways to cover the short-fall without ruining their credit rating. Many of them are taking a second look at mortgages, and opting for loans, or an increase to their savings.