Things a Banker Won’t Tell You… But Should

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Banks, like any other business, are keeping shop to make money off you the consumer, which means they aren’t necessarily brutally honest in telling you everything you should know – here are some things they don’t tell you.

1. Your home equity line of credit (HELOC) is designed to keep you in debt indefinitely

A home equity line of credit allows you to borrow against the equity you have in your home. What they don’t tell you is that, unlike a loan in which your payments cover both the principal and interest, a HELOC allows you to make a minimum payment of interest only each month. In other words, if you make only the minimum payment, you are never paying off the principal.

Another thing they might not tell you unless you ask is what kind of penalty you will be charged if you pay off the credit line early. Most HELOCs will charge you a penalty if the loan is repaid is in three years or less. The fee ranges between $400-$500 or higher currently at institutions like U.S. Bank or Bank of America.

A few other things about HELOCs: While many don’t charge any loan fees, annual fees for opening the credit line, there are some that do. Some charge percentage-based origination fees that can run into several thousand dollars depending on the amount of your credit line. For example, you could pay $6000 on a $100,000 line of credit.

Check out this list of the best HELOC lenders as of November 2021 from nerd wallet.

2. Just because they qualify you for the loan, it doesn’t mean you can really afford it

One of the big factors in the subprime mortgage crisis that kicked off in 2007 was that many lenders expanded mortgage credit to borrowers who previously would not have qualified, Federal Reserve History reports.

While we haven’t gotten back to the extremes of that practice, some lenders are giving loans to people who are spread thin between their mortgage and the cost of everyday life. Considering the rising inflation at the moment, the cost of everything is skyrocketing, particularly fuel and food, which may make it difficult for some people to handle mortgages they previously barely managed. Check out this Real-Life Ratio Calculator to get a real-world view of mortgage affordability.

3. Those interest-earning checking and savings accounts are making big money off you

Many of the checking and savings accounts that pay you interest are paying you next to nothing. The rate of interest you can earn on these accounts ranges somewhere between 0.05 and 0.5 percent. Meanwhile, the bank lends out your money at a rate of between 3 to 5 percent. Rather than a savings account, would be more profitable for you to let your money sit in a Low Risk, short-term investment like Treasury Bills or Certificates of Deposit.

4. “Advisor” at the bank doesn’t always mean financial expert

Banks often will refer you to one of their “advisors” to give you some “advice” on their financial products. But according to the Globe and Mail, unless the person is a certified financial planner (CFP) or a personal-finance planner (PFP), it’s very likely that the so-called “advisor” is a salesperson with no financial planning background whatsoever.