Loan Terms Aren’t Real Until They’re in Writing
Q: I have been trying to refinance my home for six months. At one point I had a deal with a lender that offered a one-point discount for homeowners in low-income areas. But when rates jumped, we couldn’t come to terms.
Then my loan officer contacted me about an additional discount of 0.25% that the bank was offering. My loan officer told me I qualified for both discounts and her boss concurred.
We verbally agreed upon a rate, and I immediately faxed my loan application in under those terms. Within hours my loan officer called back and said the application was denied because I could not use both discounts.
I think that once I accepted the loan terms we had a deal that the bank is bound to. Or is this the old bait and switch? --D.W.
A: Your problem provides us with great opportunity to pass along this advice concerning loan agreements from Earl C. Peattie, president of Mortgage News Co. in Santa Ana: “If it’s not in writing, it doesn’t exist.”
By your own admission, you didn’t have a loan agreement in the technical meaning of the term. What you had was a loan application based on terms that your loan officer told you would pass muster. Your real problem is that your loan officer apparently didn’t know her business as well as she should; she misled you with erroneous information. Perhaps it’s time for you to find a new lender.
And with interest rates dropping again you may find a deal that suits you at an institution that can give you the service you deserve.
Homeowners looking to refinance should try to lock in the interest rate they’ve agreed to for as long as they can.
In the last wave of refinancing frenzy earlier this year, loan departments were so swamped that processing routine refinancings were taking weeks longer than usual. If interest rates rose during the wait, lenders tried to pass on those increases. Your only protection against this is to secure a loan lock-in guarantee.
Some lenders will offer lock-ins at no extra cost for 30 days, a period that could prove worthless if it takes 60 days to process your loan. Other lenders will guarantee your loan rate for the life of the loan application--but only for an upfront fee.
A Look at Pros and Cons of 401(k) Plans
Q: My employer offers a 401(k) plan that I am thinking of joining. Can you give me the pros and cons of these plans? --M.A.
A: If your employer offers a 401(k) plan and you have not yet signed up, you are probably turning your back on free money. Does that tell you enough to get you to run to your employee benefits office and sign up now?
First, let’s quickly explain what these plans are. Named after the their section in the Internal Revenue Code, 401(k) plans are technically considered tax-deferred profit-sharing programs. However, you can think of them as another type of a retirement savings.
These plans allow employees to divert, on a pretax basis, a predetermined amount of money each year into a special account administered by the employer. Earnings in these accounts accumulate on a tax-deferred basis. You are taxed only when you withdraw the funds. An employee’s maximum annual contribution varies according to the terms of the company’s plan and the level of participation of its employees. However, the employee’s contribution may not exceed the federal government’s ceiling, which is raised for inflation every year. This year the limit is $8,728.
Perhaps the best feature of these plans is that they often come with a generous match from the employer. Some employers match 50% of your contribution; usually it’s in company stock, but sometimes it’s in cash that is simply added to your account balance. Not only do these contributions boost your account balance, but they generate interest that is yours as well.
Perhaps the only reason not to enroll in a 401(k) plan is their lack of liquidity. If you live from paycheck to paycheck and have absolutely no extra money to save, these plans will prove a burden.
Once you have contributed to a plan, withdrawing your money before you either retire or turn age 59 1/2 can generate a 10% penalty on top of the expected tax levy. If you leave your job before retirement age, most plans allow you withdraw your funds. However, unless you roll them over into a tax-deferred individual retirement account within 60 days of receiving them, they will be subject to taxation and the penalty.
There are exceptions to the restrictions on withdrawals. Most plans allow participants to borrow against their balances to meet unforeseen expenses. In addition, most plans allow participants to make “hardship” withdrawals once they have exhausted all their borrowing if they have an “immediate and heavy financial need.” Although the rules surrounding hardships are a bit nebulous, these situations have been defined to include the purchase of a house, medical bills and college education.
