The Lending Club will provide you with a mortgage loan that you use also as your checking account. The loan is like an equity loan. Borrow $200,000 and each month you add your paycheck to the account. That amount is deducted from your loan. Say I get paid $4000 a month. I put that into my account and now my loan is $196,000. My loan payment is $1500, so that raises the total to $197,500. From there I also pay my regular monthly bills [ food, gas, phone, etc.]. This also raises my loan up. The idea, I believe is by putting more into the account, it reduces the loan amount and therefore reduces the interest charged. Since loans are calculated daily, this might make the long term affect to be less overall interest paid and the loan paid off sooner. Is this correct? What are the negatives about this?
2007-05-15 02:34:57 · 4 answers · asked by steve c 1 in Business & Finance ➔ Personal Finance
Which company are you referring to? Does it have a website?
Don't listen blindly to the answers without doing some research yourself. Ignorance of new financial products isn't unusual. Wait until someone asks about an equity finance mortgage.
My understanding is that this type of mortgage first began in Australia where they wanted to help people pay down their mortgages faster and save on interest. Here's a link from a legitimate newspaper (SF Chronicle that talks about a product like that): http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2004/07/04/REG2R7G65K1.DTL
So your understanding of the product is correct. As the article pointed out, this mortgage has many pluses, but also downsides. The positives include that it fully utilizes your available cash against your loan so that your money works that much harder. For example, if you have $2,000 in a no interest checking account, but pay 6% for your mortgage, you essentially lost money with the cash in the checking account. This product deducts the cash of your checking account and essentially saves you a 6% interest on the $2,000 (assuming this is for 12 months). Yet you don't lose any liquidity, in case you need some emergency use of your cash. Proper use of this type of mortgage can shorten your mortgage also.
However, this should NOT be used as a personal line of credit and is suitable only for the financially-disciplined. It is easy to be tempted to spend the "equity" you have on the line and end up owing more money than when you started. Also, this works only for people who actually have the cash to earn interest. If you have very little cash, it doesn't help you much. Lastly and maybe most importantly, you need to realize that this is a VARIABLE RATE mortgage. Which means that the interest rate may become higher over time and you end up paying 8% or 10% interest when you could've had a 6% fixed rate.
Hope this answer helps.
2007-05-17 21:36:40 · answer #1 · answered by MBA Don 4 · 0⤊ 0⤋
Check them out with the Board of Realtors, and the BBB. There are so many scams out there anymore. Especially if they want to combine your checking account with it. Remember the saying if it sounds to good to be true it probably is worth an investigation. I have a friend in the mortgage/loan business and he NEVER asked anyone to combine their checking account into it.
For the safety of your money check it out as deep as you can. Even talk to the Attorney Generals Office.
2007-05-15 02:47:45 · answer #2 · answered by spiritwalker 6 · 1⤊ 0⤋
make particular them out with the Board of Realtors, and the BBB. there are assorted scams available anymore. extremely in the event that they like to combine your checking account with it. undergo in recommendations the affirming if it sounds to sturdy to be genuine it in all probability is wisely nicely worth an study. I extremely have a pal interior the own own loan/own own loan employer and he by way of no ability asked all persons to combine their checking account into it. For the prospect-loose practices of your funds make particular it out as deep as you would be able to. Even seek for suggestion from with the criminal expert Generals place of work.
2017-01-09 21:43:52 · answer #3 · answered by ? 3 · 0⤊ 0⤋
That's complete BS. Stay real real far away. If you're looking for a legitimate company that lends money, try prosper via BMZ.com
2007-05-15 17:03:52 · answer #4 · answered by scraps 2 · 2⤊ 1⤋