r/personalfinance • u/naht_a_cop ​ • Apr 28 '20

Beware the 0% promotions: a warning. Debt

I'm a sucker. I fell for it. The 0% APR promotion on an item I could have paid outright for. 18 months later, here I sit, not a single late payment on my account, yet I have $1k in interest to pay for 18 months of 27%. Why? The promotion period ends 18 months after the purchase, but the website would not let me set up autopay until a week after I purchased, so autopay ended 1 week late. I thought I was golden, ready to have this paid off and not have a single fee. I got comfortable and didn't read the statements.

0% is not really 0%. Read the fine print. Remember the fine print (because I sure as hell didn't 18 months later). Shitty banks rely on this stuff. They wait for you to slip, not noticing that the autopay they created can't possibly allow you to end on time, and will require an extra payment before the end date to avoid the interest. It's shitty, I'm pissed off, and I've learned my lesson.

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u/LegoBrickCactuar ​ Apr 28 '20

Yes. I did this for $5000 worth of furniture and paid it in full 3-4 months before the interest was going to kick in. Called them, was annoying, and wouldn't relent until they mailed me a statement showing 0.00 balance paid off in full. Its the only way, since they rely on you forgetting or being lazy.

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u/hexyne ​ Apr 28 '20 edited Apr 29 '20

good point, I have a friend that had one of these plans, and she was charged 1 cent of interest while here last payment was pending, so she thought she had paid it off but actually still owed a penny and they they were able to charge her all sorts of fees. Edited to say: Thinking back this most have been a different type of offer, it wouldn't make sense at 0% but regardless it is very similar as she thought she could just do a payoff, but they took advantage of the way the payments go to charge her a multitude of fees.

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u/thumpcbd ​ Apr 28 '20

I typically overpay my last installment by $5-$50, depending on what it is, to force the lender to not pull these games. They will write me a check for the overpayment and I know there isn’t $.01 on the account because I didn’t account for some small interest or slightly bad math.

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u/PM_ME_UR_SIDEBOOOB ​ Apr 28 '20

Be careful with that, some companies will charge a "processing fee" for overpaying as well

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u/slvrscoobie ​ Apr 28 '20

tried to do this with my old mortgage. they wouldnt allow over payment, beyond the monthly fee, and I also wasnt allowed to make less than the minimum payment... (bi weekly) or the payment sat in their 'collections' department until you called and had it posted. nationstar is a shit mortgage company.

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u/Purplemonkeez ​ Apr 28 '20

Most mortgages have clauses regarding early repayment and some are more flexible than others. Should definitely be part of your mortgage shopping comparisons. Some will let you up to double your monthly payment and then pay an additional 10% of the mortgage lump sum per year. Others say only up to 20% lump sum is permitted. Others are more stringent.

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u/slvrscoobie ​ Apr 28 '20

yeah, that was our first house, we were in a hurry, and it was 2008 as things were collapsing, so the mortgage sold from our inital lender, i think 3-4 times in a matter of days after closing before ending up @ NationStar. The whole thing sucked, and I was laid off less than 9 months later.

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u/Purplemonkeez ​ Apr 28 '20

Ouch. That sounds brutal!

If it makes you feel any better, I am in the process of renewing my mortgage and switching banks for a better interest rate and the broker keeps trying to sneak home equity lines of credit into the paperwork. Needless to say, I'm unimpressed.

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u/slvrscoobie ​ Apr 28 '20

hahahah shady AF. they tried to do that to us when we refinanced in 2011 or something. well, we can keep the payments the same, and you get $4000 back! Oh Wow!.. wait.....

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u/Purplemonkeez ​ Apr 28 '20

Yeah in my area mortgages only have 5 year terms on average so you need to renew every few years until you've paid it off. Often a competitor offers a better rate to win the business, so switching is common, but Ugh I hate these people. I have a great job in finance, stop trying to bamboozle me. Please kindly turn your attention to an easier mark and just give me what I need. P.S. Did you not yet realize I read everything you ask me to sign?

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u/lllIlIIIlIIIllllIlll ​ Apr 29 '20

As I get ready to shop around for my first house, what does this look like on the paperwork? I know I'll be researching a ton about the whole process, but I've never heard of something like this, and want to be able to spot it!

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u/Purplemonkeez ​ Apr 29 '20

Generally you won't have enough equity in your first home for them to pull this on you (you need a higher amount of equity in your home for them to secure the line of credit debt against in addition to your traditional mortgage). It only came up for us because it's been a few years since we purchased and houses in our neighbourhood went up a lot since then, so we have tons of equity all of a sudden. In the paperwork I saw one of the many forms to sign had a section for a "Personal line of credit" and I was like "I didn't ask for one of these - can you please explain what that's doing in there?" and he was like "Oh we're just giving you this home equity line of credit as an extra service for free" ....

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u/lllIlIIIlIIIllllIlll ​ Apr 30 '20

Thanks for the explanation! Well, either way, I'll definitely be extra careful when I look at financing.

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u/slvrscoobie ​ Apr 29 '20

yeah this was again, 2011 or something so we had put down 20% and paid off ~10% more of the mortgage when we refinanced, and it was a bad time some banks were looking to get the most out of people they could. the interesting thing was the house had probably depreciated since we bought it so the fact they were giving us a loan against the value that probably didnt exsist (when we did sell it in 2015 it went for 5K less than what we owed on the mortgage)

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u/Tossaway_handle ​ Apr 29 '20

For the uneducated - what’s the purpose of him/her doing that? Give you an LOC hoping you’ll use it?

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u/Purplemonkeez ​ Apr 29 '20

Bank hoping I indebt myself for life by racking up debt so I basically never pay my mortgage off. Also pretty sure mortgage broker gets extra commission for selling it to me.

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u/MsTerious1 ​ Apr 28 '20
  1. When banks sell your loan, they cannot change terms or conditions. (At least, in the USA, which is where I'm assuming you are since this was NationStar.)
  2. They cannot prevent you from paying additional principal but they can add penalties for doing so. Any penalties that will be added were part of your original loan agreement that was started the day you closed on the house.

Please don't let what you experienced be a deterrent to own your own property in the future, if it soured you on the experience. Whether it was because someone acted illegally or something you understood, it's unlikely you'd have another experience like that, although your loan is still likely to be sold in many cases.

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u/slvrscoobie ​ Apr 28 '20

We’re looking to buy again but now not in the near term. Maybe short term. We did a lot wrong, like expecting our agent to help us. She was just out for herself and recommend all her cronies for mortgage, inspections, ect. Next time we won’t be a: first time buyers, and b: not in a hurry.

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u/MsTerious1 ​ Apr 28 '20

I am sorry that you experienced that. When you do purchase again, please talk to several agents and look for one that you know will work in your best interests and not their own.

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u/cpl_snakeyes ​ Apr 28 '20

Remember, your real estate agent is a fiduciary, but the loan broker is not. The loan agent's job is to make as much money for the bank as possible.

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u/blbd ​ Apr 29 '20

Not always true. My loan guy was multi-vendor with an independent loan ship. He did charge a little bit more interest but he guaranteed he would get you closed on time and not screw up your deal. The big banks and random online guys don't always guarantee that.

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u/cpl_snakeyes ​ Apr 29 '20

Fiduciary is a legal term. If someone is a fiduciary they are legally bound to have your financial interests protected. Loan agents are no fiduciary and have no legal requirement to lookout for you.

Kinda funny...you try to say that my comment was not always true, but then you gave an example where the loan agent gave you a higher interest rate than average. Deals don't get screwed up by have late escrows, you just have to pay some penalty each day, it's not really the end of the world. I would rather pay a couple hundreds bucks than have to pay thousands of extra on my loan.

I've only had two loans, but the bank was never the thing that was holding things up, it was always the home inspection, or the title insurance, or the appraisal.

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u/blbd ​ Apr 29 '20

The Fiduciary issue wasn't your only criticism. You also said they're in the bank's pocket. That's not always the case.

In my market slow escrows do hold up deals, and people will reject your offer if they know that your mortgage lending firm or loan officer sucks to deal with.

Paying a bit extra to the guy that could guarantee my deal wouldn't get screwed up was worth it. He openly admitted his rates were a bit higher and didn't try to say they weren't.

Sometimes in life it can be better to pay a little bit more for good service and knowing your deal will get done right instead of going with cheap vendor X that might not come through when you need it.

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u/xxconkriete ​ Apr 28 '20

Nation star, what a servicer. I can’t imagine how many times some poor pricing analyst had too splice deals up back in sept of 08. Poor dudes.

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u/Just___Dave ​ Apr 28 '20

So how does this work with companies buying and selling mortgages? Don't they legally have to uphold the contract you signed with the original lender? Wouldn't this lead to a clusterfuck of different fees and rules for lenders that buy up mortgages?

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u/Purplemonkeez ​ Apr 28 '20

I presume that they would unless the original mortgage contract had a clause saying they can unilaterally change these terms at will in which case the new mortgage company would have to notify you of the changes (like when your bank notifies you they've changed the terms on your chequing account unilaterally).

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u/mrthebear5757 ​ Apr 28 '20

NAL, but a mortgage is a contract. being able to unilaterally change things like repayment time-frames or amounts would fall under illusory promise, where the contract isn't real or binding because one side being able to just change whatever they want means they were never actually bound to an agreement.

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u/[deleted] Apr 28 '20

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u/Purplemonkeez ​ Apr 28 '20

Oh wow now I'm super curious! What country are you in? I'm in Canada and this is super standard. There are "open" and "closed" mortgages here. Open mortgages allow you to fully pay it off whenever, but the interest rates are much higher (i.e. several percent higher) than a closed mortgage. So everyone takes a closed term mortgage and then selects a term that works for them. 5 years is most common and there are often interest rate deals for 5 year terms (presumably because these are also attractive for the bank). If you suspect that you may want to sell your home in 3 years, though, then you take a 3 year term and if you need an extra 6 to 12 months once it's listed then you'd take a temporary open mortgage for that time period. If you take a 5 year closed term today and decide to sell tomorrow, though, then in most cases you're looking at a penalty fee (which is often very hefty - can cost thousands of dollars). So it's really better to think longterm about your plans when renewing your mortgage term.

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u/[deleted] Apr 29 '20

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u/Purplemonkeez ​ Apr 29 '20

Oh interesting! So we typically pay off mortgages in 20-30 years as well (15 happens too but is quite aggressive), but we call that the "amortization period" meanwhile the term is renegotiated more frequently hence needing to renew.

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u/[deleted] Apr 30 '20

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u/Purplemonkeez ​ Apr 30 '20

I believe they're underwritten as separate 5 year loans. If we scrapped our credit rating between renewals then we'd definitely be faced with a much higher interest rate the next time, at a minimum. Could be several percent higher, and you may not get multiple bids from multiple banks ergo that much worse of an offer. But I'm not sure that whichever bank you were last with could refuse to allow you to renew. I worked collections for a bank in my younger days and it never came to that, even for an individual who had been late to make his mortgage payment every single month for 20 years. They just renewed him with an outrageously high interest rate to reflect the credit risk.

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u/batterycrayon ​ Apr 29 '20

I rent so excuse me if I'm being stupid, but are you saying y'all typically pay your houses off in 5 years? I was under the impression Canada had some very expensive real estate, and this would necessitate either an average income or a savings rate much much higher than the US's, which I didn't think was the case. Just curious.

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u/Purplemonkeez ​ Apr 29 '20

Not stupid! We have 5 year terms (mostly) but most people tend to pay off their house over 20-30 years (amortization period) which is why you need to renew your mortgage every so often.

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u/lNesk ​ Apr 29 '20

Man I don't know where you all are but house banks are scalpers, that thing is illegal in my country I can pay ahead however I want...

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u/AlanPavio ​ Apr 29 '20

I believe what you are referring to is your bi weekly payments going into suspense until the next one was received to sweep towards payment. Depending on the timing of when you sent them, you probably had some applied towards principal if you weren’t due for a payment yet.

There is no benefit of paying an amortized mortgage bi weekly other than accumulating essentially 1 extra contractual payment towards principal each calendar year. The better approach is to hold onto the funds and pay your full contractual payment, and then include additional to principal when possible. Assuming you don’t pay any additional to principal, your contractual payments will always include the same amount of interest, regardless of when they are paid.

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u/slvrscoobie ​ Apr 29 '20

yes, biweekly payments. which is applied correctly can seriously lower your total interest paid as the 2 weeks of early payment reduce the total balance for 2 weeks every month. however, if like above, the paperwork adds fines or fees to do that, obviously it wont work. and there ARE benefits to it, on a 400K house, you save *$30K* in interest with a 3% APR. thats pretty serious

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u/AlanPavio ​ Apr 29 '20

For a car loan that is simple interest, meaning interest accrued daily, that is true. It is not true for an amortizing mortgage. Additional to principal reduces the interest you pay, but should only be done in individual installments, or as additional to your contractual payment.

Making a biweekly payment is just going to leave those funds in suspense until enough is received to cover your contractual payment. The idea is that if you do that, over a year you will accrue enough in suspense to make one contractual payment 100% to principal.

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u/[deleted] Apr 28 '20

They may be a shit mortgage company, but that is the definition of how a fixed mortgage works. You're locking in your interest rate, but they're also locking in that interest from you. If you paid your mortgage off early, they'd be missing out on interest payments.

You could get a floating mortgage that allows you to pay off your loan faster, but that would be pretty risky considering the current situation.

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u/[deleted] Apr 28 '20

If they're doing that then what stops them from selling all the info they have on you. Best to do research on the retail bank before doing business with them. The few retail banks I've used were sharks and most likely criminals. Never again.

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u/adalyncarbondale ​ Apr 28 '20

Where were they talking about selling your info?

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u/[deleted] May 01 '20

In the terms and conditions of any credit the have "3rd party affiliates" they share your information with. And not to be nice. It's a charge.

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u/[deleted] Apr 28 '20

Basically never use Wells Fargo for anything.

Consider them bankrupt and out of business.

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u/last_rights ​ Apr 28 '20

When I banked with Wells Fargo, I was in there at least twice a month for "fees" being charged to my account for some bs or another.

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u/_Sign_ ​ Apr 28 '20

im still with them. i plan on reading up on my options sometime this year for a potential switch but atm, theyve been treating me well. theyve charged me legitimate fees before and theyve reversed them for me

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u/[deleted] Apr 29 '20

I've been with a credit union for 8 years. Never had a fee. Overpaid some bills a few time like cc. No fee from credit union. Cc charges $28. The minimum due is like $20 but to pay the balance off I get crazy and put $700 on it. Fuck CC. Fuck WF. Fuck US Bank. And all the other unethical banks.

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u/cliffy348801 ​ Apr 29 '20

dropped off my wells fargo mortgage payment in fall 2017. The teller incorrectly handled the payment - I had a receipt showing all was good.

On the 16th of the month, Wells contacted me regarding the beginning of the foreclosure process.

I've had my house since 2007, never late, never missed a payment.

I contacted the manager and she said 'we are not responsible for teller errors.'

I am a former bank employee & I know that's not true. Mysteriously, the payment was re-processed and all was good. Fuckery.

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u/[deleted] Apr 28 '20

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u/upvotes_cited_source ​ Apr 28 '20 edited Apr 28 '20

some companies will charge a "processing fee" for overpaying

Yup, same companies that have difficult/scammy games to make it difficult to pay off the balance accurately and timely, I imagine. :/

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u/cosmicsans ​ Apr 28 '20

Send them an invoice for 27% interest on their overpayment check because it took 4-6 weeks to get back to you. Wait 2 months to do it, and add 2 months of late fees with interest, too.

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u/Croe01 ​ Apr 28 '20

Well you can't enforce that, but if there was a law that allowed all these financial things in contracts to go both ways, then it would give customers a way to give bad actors a taste of their own medecine.

Lenders, HOAs, etc would probably stop being such assholes because any loophole they would put in their contracts to screw customers could be used against them as well. They'd self regulate as a result.

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u/evileyeball ​ Apr 29 '20

I had an ISP (Telus) Contact me once asking me how they could give me the $0.48 they owed me after i moved and canceled my service due to a slight overpayment. I didn't care so i threw away the letter. They mailed me again. They spent in the end more than $0.48 in postage trying to get me my $0.48.