Tuesday, March 17, 2009

Banker’s Math: 29=31=$

My wife and I refinanced our mortgage a few weeks ago. We were fortunate to be among the few who qualify these days, given that the banks have now decided to be more responsible in their lending practices. To their credit, they scrutinized us oh-so-carefully, despite the fact that our loan to value ratio was less than 50%, we have no other debts, we have credit scores over 800, and we have a record of over 35 years of never missing or being late with a payment on anything, including mortgages.

For those of you who haven’t been through this process, be prepared to see just how it is that banks and others involved in the loan business make money for doing essentially nothing, and how everything is set up to favor the lender, not the borrower. For example, even though the new loan is with the same bank as the original loan we took out five years ago, we had to pay for them to do another title search and issue a new title insurance policy (note, there had been no change of ownership to the house and they knew it). Then we have all the fees – a fee to close the old loan, a fee to prepare the documents, a fee to record the documents, a fee to check our credit scores, a fee to calculate the fees, etc., etc.

The coupe de grace came when we received the figure needed to pay off the old loan. The day of reckoning, when the old loan was paid and the new one began, was March 2nd. Our last payment on the old loan had been for interest to February 1st. Since 29 days had gone by (28 in February, plus 1 in March) I expected to pay 29 days’ worth of interest. Wrong. According to bankers’ math, a standard month (30 days) had gone by, plus one more day for a total of 31 Bankers’ days of interest required for the payoff. Seriously – to our bank, February has 30 days, not 28, and we had to pay for those 2 extra days as well as the 29 that had actually gone by. I called the bank about this and of course got nowhere. Banker’s math trumps the borrower’s math every time. Cha ching!

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