Overheard a couple in their 20’s talking about Mortgages, so I waded in and told them a little of my background. We chatted for a while and he pulled out a letter from his Lender.
$450,000.00 loan over 30 years at about ca. 4.5 or 4.6% INTEREST ONLY for 3 years, about to revert to PRINCIPAL AND INTEREST at >5.3%. Neither of them had ANY IDEA what those terms meant or how it affected them, and they certainly did NOT understand why their Mortgage repayments were jumping from around $1,720 per month to $2,500.00 per month in a couple of weeks. NO IDEA at all.
Since they had borrowed through a Broker, she had had a baby and gone part time AND they had signed up for a brand new car at Dealer finance, which was not, in any way, a “friendly” deal as had been promised!
I brought up a Loan Calculator online and asked them what their circumstances were at the time they took out their loan. OH DEAR! The BEST I could come up with was $350,000.00, certainly not $450,000.00. I told them about suspect Brokers who were inflating people’s circumstances, as well as Banks bad lending practices that were “setting people up for failure” down the track.
They got quite angry – not at me, but left, RAGE ON, ready to question both Broker and Lender with the list of ‘please explains” I’d provided.
Here it comes folks – all these bullshit loans made before the Banks were forced to tighten lending criteria are coming home to roost. This couple are screwed and will have to hand back their car, or sell their home.