\n| $500,000<\/td>\n | $1,265<\/td>\n<\/tr>\n<\/table>\n Examples shown based on APR 7.13%.
\n** See other side for important information.\n<\/p><\/blockquote>\n Wait a minute… a $300,000 loan at 7.13% for only $759\/month? That doesn’t look right. I whip out my calculator (actually, bc -l<\/tt>) and determine that the interest accrued on $300,000 at 7.13% in a single month is $1782. Therefore, after making your payment, you would still accrue $1023 each month… on top of the principal, which you wouldn’t have paid down at all. How can this be?<\/p>\n I turned the page over to read the “important information”, in all of its hideous glory:<\/p>\n \nPayment shown in the minimum payment for the first year<\/b> and is available on a non-fully amortized loan<\/b> of 40 years<\/b> based on a 1% payment rate<\/b>. If this payment is made it will result in interest being deferred to the balance of the loan<\/b>. It is possible at the end of term to still owe principal<\/b>. If this payment is made no principal is paid down<\/b>. APR shown is variable rate<\/b> with an annual cap of 2%<\/b> and lifetime of 10.9%<\/b>. Payment can increase by a maximum of 7.5% per year on payment minimizer.\n<\/p><\/blockquote>\n I have bolded all of the gotchas. I’m actually not sure what they mean by a “1% payment rate”. But it’s clear that the low-low payment of $759 is only permitted for the first year. Who knows how high it will go next year? There’s a cap on its increase of 7.5%, but obviously you aren’t doing yourself any favors by keeping that payment low — you’re just accumulating more and more “deferred interest”. At the end of the first year, you will have paid $9108, and you’ll owe $312,276. You’re racking up debt to “Union Fidelity” at a rate of more than $1000\/month for the privilege of… what? Living in the moment? Robbing your future self to pay the present? (There may be those who would intentionally choose such a loan, counting on an increase in equity to compensate for the mounting loan balance, but that’s way outside my comfort zone in terms of rational risk.)<\/p>\n And that’s not all. That assumes that the interest rate stays at 7.13%. But according to these terms, not only might the minimum payment go up, the interest rate itself is variable<\/b> and can go up by 2% each year. Ouch.<\/p>\n But wait, there’s still more! Unlike traditional 30-year loans, or the more cost-effective 15-year loans, this one is a whopping 40-year loan. If fully amortized (that is, you pay interest as it accrues *and* pay down principal on a 40-year schedule, so as to not end up owing anything at the end), the monthly payment should be $1893. Anything less than that just helps you dig yourself a financial hole so deep you may never get out. And if you do make that fully amortized payment, then over the 40 years you will pay… wait for it… a total of $608,490 in interest. *Twice* the amount of your $300,000 principal! (A 30-year loan with the same rate, fully amortized, would have you paying $427,980 in interest.) And the reality, with this loan, would be so much more costly.<\/p>\n This stuff makes me sick to my stomach. In terms of “learning”, this was a yet another one of those sit-up-and-take-notice moments, and a chance to be surprised anew at how manipulative and opportunistic money lenders can be. Before today, I wasn’t even aware that “non-fully amortized” loans existed. Or maybe I’d just turned an instinctive blind eye.<\/p>\n To top it all off, the microprint for the terms concludes with:<\/p>\n \nThis is a great loan for many different circumstances.\n<\/p><\/blockquote>\n Do tell, Union Fidelity Mortgage. Just which circumstances make this a “great loan”? <\/p>\n","protected":false},"excerpt":{"rendered":" Like homeowners everywhere, I am regularly inundated with mail offers to refinance my mortgage. I have no desire to refinance the quite attractive interest rate I got when I bought my home, so most of these go straight to the shredder. But sometimes the mortgage companies disguise their offers in blank envelopes, so I open […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[18,10],"tags":[],"_links":{"self":[{"href":"https:\/\/www.wkiri.com\/today\/index.php?rest_route=\/wp\/v2\/posts\/33"}],"collection":[{"href":"https:\/\/www.wkiri.com\/today\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.wkiri.com\/today\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.wkiri.com\/today\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.wkiri.com\/today\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=33"}],"version-history":[{"count":0,"href":"https:\/\/www.wkiri.com\/today\/index.php?rest_route=\/wp\/v2\/posts\/33\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.wkiri.com\/today\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=33"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.wkiri.com\/today\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=33"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.wkiri.com\/today\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=33"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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