Have you ever had someone at your local bank branch offer you life insurance?  Did they ever offer you a line of credit out of the blue?  Undoubtedly, at some point they have asked you about your mortgage…

Banks have evolved over the years to include all kinds of products to offer a 360 degree customers.  In most recent years, the way that they approach lending products has changed dramatically.  David Chilton, author of the Wealthy Barber puts it best when he says – “Banks have switched from being debt providers, to being DEBT PUSHERS!

The big 5 banks in Canada are making record profits as a result of this change as well as another trend that you may not have noticed.

People want to do all of their financial business in one spot.

When you combine the two trends, it makes for a deadly combination.  By keeping all of your finances with the bank, they know EXACTLY what to push on you and how.

Here is a list of scenarios where the bank seems to be helping, but in fact they are tying you down.

1)   Lines of Credit

If you are a little over-extended on your credit card, they offer you a Line of Credit with a phone call about how you should pay off the credit cards with a lower interest line of credit.  Now you have a monthly payment on the line of credit AND you have the opportunity to run-up your credit cards again, taking you further into debt.

2)   Mortgage Life Insurance. 

Mortgage life insurance is in itself a worthwhile expense for some, but what you don’t know is that the bank’s mortgage life insurance is non-transferrable.  When you come up for renewal, you MUST renew with them to keep your insurance policy that you have been paying into for 5 years.

3)   Promotional rates for credit cards. 

This one speaks for itself – you now have a Visa with 1.9% interest, but after 6 months the card flips into a much higher interest rate.   At that time, if you haven’t paid out the balance you are stuck with one more credit card with an interest payments at 23% and a fee to close the account.

4)   Home Equity line of credit

Thinking of doing a big project on the house?  Why not set up a line of credit that has an increasing balance as you pay down the mortgage.  You can draw directly from that account to pay for anything you like.  The result: instead of paying down your mortgage, you are just moving the debt over to a line of credit with a higher interest rate and increasing your debt load.

5)   Collateral Mortgages

Almost all of the big banks are automatically registering their mortgages with a collateral charge at 100% of the value of your property.  If you want to do a 2nd mortgage, you have to do it with them.  If you want a secured line of credit, you have to do it with them.  If you would like to move to a different lender, you have to pay a lawyer to re-write your mortgage charge.

All of these products seem to be extremely timely and convenient when they are offered – but it’s not convenient to go further and further into debt, which is what is happening.

From your perspective, the bank is offering you a ‘life preserver’ – something to keep you afloat as you figure your finances out.  In reality, with each product that they offer you, they are slowly TYING YOU DOWN.  In the end, instead of offering a life preserver, they really just handed you an anchor.