Contracts 101: Big print giveth and fine print taketh away
Posted
Feb 06 2008, 08:24 AM
by
Karen Datko
Rating:
This post comes from partner blog The Dough Roller.
Many years ago I was a buyer for a large pharmaceutical company. My boss had worked at the company for many years and was a man of great experience. As he taught me to negotiate contracts, he constantly reminded me of this one eternal truth: Read the fine print. As he put it, "The big words giveth, and the small words taketh away."
Well, that advice is as true today as it was 20 years ago.
Last year I received in the mail an offer for what appeared to be a really low interest rate on a mortgage. The offer was from Countrywide Home Loans, which seemed to me at the time to be a reputable mortgage company. The letter was promoting a "PayOption ARM."
Here is what the big print giveth:
At first glance, this doesn't look so bad -- a $750,000 loan for just $2,025 per month. The first suggestion that something could be wrong is in the fine print, which says, "Minimum payment may result in deferred interest." In other words, the minimum payment of $2,025 would not be enough to cover the monthly interest, so your loan balance would be going up each month, not down.
When you turn to the really small print, things get even worse. Here it is:
The fine print is so small, you probably can't even read it. Here is what it says:
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The initial interest rate is 1.25%.
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The annual percentage rate -- or APR -- is 7.69%, which tells you the 1.25% teaser rate won't last long.
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Closing costs are estimated to be $8,000.
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After the introductory period, the interest rate adjusts monthly.
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The interest rate on the loan can go as high as 11.95%.
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The monthly payment could go as high as $4,145.
I'm still amazed that a mortgage company would advertise this kind of loan package. You'll see them use words like "flexible" and "four payment options." But the result is the same -- a dangerous home loan for consumers. Buyer beware: Read the fine print. Or as a police sergeant in one of my favorite 1980s drama series would say, "Let's be careful out there."
Other articles of interest at The Dough Roller:
"A Microsoft-Yahoo merger is good for bloggers, the Internet and even Google"
"How to buy partial shares of Berkshire Hathaway with ShareBuilder"
"Reader question: Should you invest in a 401(k), a Roth IRA, or pay off credit card debt?"
