How Do You Beat a Bank?

You do not play.  Once they get their hooks into you it is pretty tough to break free.  But they make it so easy right?  Open this account here, get a Home Equity Line of Credit there and before you know it you are living a lifestyle off credit and not earned income.

Yes, we all agree the subprime meltdown was insane.  Why would they give loans to people with bad credit, no income, and no money?  Well now the banks are all “in trouble” all from their own doing and they want us to bail them out.

But what happens when this whole subprime mess goes away and property values start back up again?  Surprisingly, not all property values are even going down right now.  The majority of foreclosures are mostly in localized areas and while your values are probably not going up right now, they are not going down either.  When values start back up again, the banks will be on a full court press to convince you to use your equity to fund your lifestyle. 

This is what they have been doing for years until the equity ran out.  First, they hook you with just one account.  When you pay your mortgage to a bank they can solicit you for all kinds of other products they offer.  They send you a credit card.  You use the credit card along with all of your other credit cards.  Then, they tell you how silly it is to pay all that interest on your credit card debt when it can be tax deductible with a Home Equity Line of Credit (HELOC).

You get a HELOC and pay off your credit cards.  Then, they tell you how much money you could save with a refinance of your first mortgage paying off your HELOC.  Meanwhile, you probably charged up those cards you paid off with the HELOC again so we might as well pay those off too.

Chances are these people probably had a low fixed rate to begin with and now pay a higher rate on the debt consolidation first mortgage.  This just keeps happening until we sit like we are today with values staying the same or dropping.

And the saddest thing is all the money that went into the bank’s pockets and out of theirs.  Every time they refinanced, they paid the bank thousands of dollars.  But because they used the equity in their home to pay them, it somehow does not seem real. 

Well it is real to the bank which is why they just keep pushing.  People may think the equity is just sitting there so why not use it?  But there are consequences to using it.  Right now there is no equity left.  They are stuck with credit cards, a HELOC, and a first mortgage with a high rate.  Then, gas goes to $4 a gallon and it almost pushes them over the edge. 

This time around we have to push back.  We have to take control of our finances and not let big banks call the shots.  As soon as values start back up again the banks will turn this up again.  With all the banks in trouble right now, my hope is that people will no longer think of the bank as their “friend” anymore.  Banks are not your friend.  They are the enemy and once you know their game, you just do not play.