Topics: lending, real estate
So you’re sitting in your home that you purchased sometime in the last few years, reading news of economic woes and various proposed bail-out plans for stupid homebuyers who bit off more than they could chew in the housing market, and you’re thinking, “Man, why couldn’t I have been stupid with my money too!”
I’ve been thinking that a lot lately myself. Sure, I can afford my mortgage payment, I have a hefty emergency fund and growing retirement savings, and things look pretty nice. But you know what? If my fixed-rate loan were at 5% instead of the 6% I’m paying now, I’d have a good bit of extra money each month I could devote to my ceramic rooster collection. The trouble is:
- I pay all of my bills, including my mortgage, on time and in full every month.
- My credit rating is awesome. Seriously, I can make women faint just by telling them my credit score. Some men too.
- No bank in their right mind is just going to give me a free interest rate drop just because I want it, especially since it looks like I’ll have no problem paying my mortgage forever.
Sure, I could refinance, but rates are not yet (and probably won’t be) at the point where I’d break even unless I were committed to staying in my current residence for a decade or so, which I’m not.
There are other ways I could convince my bank to drop my interest rate. For example, I could stop paying my mortgage for a couple of months. Then I bet I’d get a call from my lender asking if there’s anything they could do to help encourage me to start sending them thousands of dollars again. “Of course! Just drop my interest rate by 1% so I can afford my payments again.” And depending on how desperate my lender would be to keep my mortgage checks coming in, they might just agree. Think it’s not possible? There has been more than one instance of people getting free interest rate drops for doing just that.
Of course, if I stopped paying my mortgage for 60 or 90 days, I risk plunging my creditworthiness into an unforgiving abyss, and there’s no guarantee the bank would even agree to drop my rate. Still, wouldn’t it be worth a 200-point credit score drop for a few years to save myself $250 or more each month for as long as I owned my home? Some might say yes, and if this scheme were a sure thing, I’d gladly trade score for cash.
But is there another way to frighten your lender into giving you a break on your interest rate? What if you made them think you were going to stop paying your mortgage without actually doing it? I guess you could simply call up your bank and say, “Drop my interest rate or I’ll stop paying next month” to which your bank would likely reply “To reach someone who thinks you actually have the balls to do that, press 1. Otherwise, stay on the line while our call center employees laugh at you while you’re on hold.”
Someone who has a strong credit history saying that they’re willing to throw it all away probably won’t scare a bank into a free rate drop. But what if you gave the bank some evidence that you might really stop your payments? Say, for example, you loaded up on credit cards, maxed them out as much as you could, and then went to your lender asking for help. If your bank sees that you’re charging a bunch of credit cards left and right, they might be more willing to buy into your threats of defaulting on your mortgage.
So, for those of you out there with entirely too much courage, a credit score you don’t mind trashing for a few months, and a mortgage lender with real people who might be willing to listen to you, here’s how to command a mortgage rate drop in three simple steps:
- Go after every bit of credit you can. We’ve talked briefly about credit card app-o-ramas on here before, but what you want to do is apply for pretty much every darn credit card in existence. If you can rack up around $250,000 in new credit, you’re probably in good shape going into step two.
- For added effect, use as much of that credit as possible. If I were a bank and I saw you with $250,000 of new credit lines in one month, I’d be pretty scared that you’re about to make a financial mess of yourself. But if you really wanna make your lender poop its pants, you could try spending that quarter-million dollars. Obviously you don’t want to buy anything you can’t return for a full refund later. Your best bet may be hitting some electronics superstores and loading up on a few hundred 50″ televisions. But for the love of all that is holy, study their return policies like it’s your final exam in astrophysics and don’t open the boxes.
- Go to your lender and beg for help. Make an appointment with someone at your bank (the one that holds your mortgage loan). You should experience a conversation that goes something like this:
You: Hi, I can’t afford my mortgage payment anymore. Can you drop my interest rate a point or two?
Bank Person: (Typing.) Well let’s just take a look at your credit report here and HOLY RAVIOLI YOU’RE ABOUT TO DECLARE SUPER-BANKRUPTCY WHICH IS 500 TIMES WORSE THAN REGULAR BANKRUPTCY!!!
You: Yeah, can you help me out with that?
Your maxed-out, multi-hundred-thousand-dollar credit lines should be enough to convince your lender that you are indeed in some sort of financial trouble. But it’s up to your lender to decide if they want to help you and themselves avoid a foreclosure situation which could cost the bank tens of thousands of dollars.
Whatever the outcome, be sure to return everything you bought in step two and pay off your credit cards in full. It may take a few months, but your credit rating should stabilize once your balances return to zero. Any credit hits from all those inquiries when you opened your new credit lines should be partially or completely offset by your massive new total available credit line.
While most of the actions above should only have temporary effects on your credit score, I cannot put enough disclaimers on all of this because any number of things could go wrong. At the very least, you could piss off your bank and they’ll leave a nasty note in your mortgage account’s record saying “Does not play well with others.” Or your credit card issuers might see your massive credit grab as a sign of financial struggle (which is the illusion you’re trying to create, right?) and decide to close down some or all of your accounts. Or you could screw up the whole buy-and-return process and end up with 250 HDTVs that are yours to keep and pay for. So proceed with this plan at your own risk and only if you think you have the discipline to carry out the plan in its entirety… or at least up to the point where you can send me a funny e-mail that starts “So the bank foreclosed on my house today thanks to you….”