BEWARE FIRST MERIT BANK!!!!

[Earl]

I just go notice from First Merit that they are calling my loan on my airplane.  I spoke to them this morning and they indicated they were no longer going to be national and were retrenching to a few midwest states.  Despite the fact that it is a 20 year note and I have made all my payments they are pulloing the rug out from under me. 

DO NOT DO BUSINESS WITH THIS BANK!  They are not serious about being an aviation loan provider.

[MooneyMitch]

What? I know absolutely nothing about the banking business, but it seems to me that a loan is a contract agreed upon by at least two parites.  They agree to loan the money, which the did, and you agree to repay at the rate/amount agreed upon. 

 

[carusoam]

Check you loan papers....

They probably include the statement that they can recall the loan when and if the want or need to.........etc.  Aircraft loans have very few of the consumer protections that home loans have.  Regulations seem to be there to protect the banking institution.

Next Steps:  It seems proper to search for a new loan to pay off the old one.  Fortunately rates are low at this time.  With your payments in place and down payment already made, you will most likely be in a low risk category.

AOPA and Bank of America are a good place to start.  A search of MooneySpace for other financial institution recommendations would make sense also.

Best regards,

-a-

[Earl]

I understand they have the legal right to call the loan.  What I object to is the reason they are calling the loan and the fact that I have finally gotten to the point on the amortization schedule where I really start whittling away on the principal.  So they have gotten all the intrerest payments in the first portion of the loan and now I have to start over with a new lender.  This is shady business at its best. 

[Earl]

Quote: Mitch

What? I know absolutely nothing about the banking business, but it seems to me that a loan is a contract agreed upon by at least two parites.  They agree to loan the money, which the did, and you agree to repay at the rate/amount agreed upon. 

 

[MooneyMitch]

I had no idea so thank you for the education.  Maybe this is something standard with aircraft loans, or is it possibly just an issue that might come under the "fine print" section.  I do hope you will be able to get new funding as suggested from Carusoam with AOPA or others. 

[Bob]

Sorry this happened to you.  You don't have to start over.  Interest on the load balance ends up being a daily rate with the overage, after interest is paid going to principle.  If you had a 10 year note that was 5 years old, then refinaced for 5 years with another bank, then next payment interest and principle would be the same, as if you never changed a thing.  However if the newer note had a lower rate, your next payment would be lower, the interest would be lower and the principle payment would be higher.  I used Bank of America and they were great.  This bad situation gives you 2 advantages.  Chances are you will get a better rate as some have stated.  You also can re-evaluate you financial situation on your Mooney.  Bank Of America will write the loan for, if I remember properly, 2-20 years.  Unfortunately it looks like your negative effect may be loan fees.  Good Luck!  Can't wait to hear how you turn this one into a good deal!

[Newguy]

Quote: ehscott

I understand they have the legal right to call the loan.  What I object to is the reason they are calling the loan and the fact that I have finally gotten to the point on the amortization schedule where I really start whittling away on the principal.  So they have gotten all the intrerest payments in the first portion of the loan and now I have to start over with a new lender.  This is shady business at its best. 

[carusoam]

ehscott,

True - the interest slope is tilted to the early payments.  I clearly understand the dissappointment now...

Mitch, it is definitely in the fine print section, but not too difficult to understand.

What is unfair, is that ehscott will enter a new agreement with a lender and start making payments that are biased toward paying down interest first and then capital. 

Even with a new aviation loan, the terms are usually no shorter than 15 years.  The early payments are high in interest and low in capital.  Even paying it off at a high rate puts an undue amount of interest up front.

Sounds like it might be a good idea to seek legal / financial counsel.  It sounds like you may have paid "too much" interest and you should seek getting the too much part back.  At least know the best way to mitigate this interest situation.

Also consider if a home loan would be more in line with your financial requirements.  Home loans have much lower interest rates 4 vs 6 % and have better consumer protection.  Of course, you have to have equity in your home to borrow against.  Financial risk: you lose your home, but not your plane.    Somebody did say you can sleep in your plane, but you can't fly your home......

Keep in mind this is amateur financial suggestions.  You know I am not a finance expert.

Best regards,

-a-

[N601RX]

Also look at using something other than the airplane as colateral. When we purchased ours airplane rates were around 7%.  By using something other than the airplane we were able to get it for 4%.  This way you will also have a "Clear" title to the aircraft.

Home, Home equity, CD, Vehicle that is paid off, ect.

[flyguy241]

Or you could just pay cash and tell those guys to stick it.

[carusoam]

Mike and I hit the same topic within a minute of each other....

I think Mikes A/C interest rate (7%) better reflects reality than the one I quoted (6%)....

-a-

[Mcstealth]

I will need to read the note. For a bank to call in a fixed rate, full amoritization loan, there would need to be some strong language indicating the what, wheres, and hows this could come to be. Could you post this please.

[Earl]

Well I went back and looked at my correspondence and the loan docs. In all the correspondence the only term used by me and the broker was 20 year note. However, when I reviewed my loan docs the one aspect I failed to notice was the maturity date, which was in 2011, instead of actually being a 20-year note. And I also missed the very tiny portion buried in pages of legalese where they estimated the principal amount that would exist when the loan matured. Shame on me for not having my GC review this loan as I am sure she would have noticed it.

However, I can assure you that both I and my broker had specifically requested and were left with the distinct impression that it was a 20 year note instead of a 5-year note with a 20-year amortization. He did not review the loan docs and only referred me to First Merit so I really can't blame him. This is my fault and my embarrassment for having believed what I was told instead of what I was given. Lesson learned.....

I also now understand why they did this and why they elected not to renew the facility. After several responses from lenders it turns out that Vref for my plane is about equal to what is left on the note. So they would have been forced to come to me and tell me I needed to pump in an additional 15% equity to get the LTV to 85%. I am quite sure they realized that when I learned I had been bamboozled (and stupidly signed onto it) and had to pony up additional cash to refinance that I would have gone elsewhere and on that note they are exactly right. They knew what they did and frankly would have probably gotten away with it if the Vref had not dropped. They would have just sent me a nice note saying they were renewing the facility and the good news is the rate is dropping a little but such was not the case and here I am.

Here is my current strategy. I am going to send an additional $5K in principal each month from now until the note matures in December. That way I spread out the cost to get my LTV to more than 85%. I will then refinance with a 15-year note.....not a 5-year note with a 15-year amortization and I will have the loan docs reviewed by my outside counsel so I can say, "Fool me once, shame on you. Fool me twice, shame on me." In 25 years in business and millions in loans and lines of credit I have never had this happen. It won't happen again.

[KSMooniac]

I have the same loan (my first) that enters the 4th year next month and was told when I was loan shopping that doing a 5yr balloon/20 yr amort was common for airplanes b/c something like 80-90% of aircraft owners will either sell or do a major upgrade/refi (ie engine, paint, interior, etc) on average every 3 years.  Knowing what I know now, I'll refinance it into a shorter term fixed loan sometime this year since I have a keeper of a plane and have been doing my upgrades with cash instead of financing them.

[Earl]

Quote: KSMooniac

I have the same loan (my first) that enters the 4th year next month and was told when I was loan shopping that doing a 5yr balloon/20 yr amort was common for airplanes b/c something like 80-90% of aircraft owners will either sell or do a major upgrade/refi (ie engine, paint, interior, etc) on average every 3 years.  Knowing what I know now, I'll refinance it into a shorter term fixed loan sometime this year since I have a keeper of a plane and have been doing my upgrades with cash instead of financing them.

[KSMooniac]

Yeah, I'll have to sweat that LTV a bit when time comes.  I think I'll be OK as I've done paint, some speed mods, new MT prop, and some panel improvements...hopefully that will be enough to keep me well above the threshold.  

First up for me this year is to re-fi my current house (in process) and then buy another house as soon as the right one appears and then turn house #1 into a rental.  I plan to take the profit from the rental and roll that into the plane note so I can retire that as soon as I can... hopefully that plan works!

[Mac201]

Interest rates will most likely be higher by the end of the year.  If you have the resources, it may make sense to reduce the loan balance now and go ahead and refinance the loan.  Just a thought.  Good luck.

[Mac201]

Tried to post.  I try again.

Interest rates will most likely be higher by the end of the year.  If you have the resources, you may consider reducing the loan balance now and go ahead with refinancing while rates are lower.  Just a thought.  Good luck.

[Earl]

Quote: Mac201

Tried to post.  I try again.

Interest rates will most likely be higher by the end of the year.  If you have the resources, you may consider reducing the loan balance now and go ahead with refinancing while rates are lower.  Just a thought.  Good luck.

[Earl]

Gotcha.....agree that no one can predict with certainty but the consensus from what I had read was that rates will  not rise much over the next year.  I will put that in my analysis and see what makes sense.  Either way, my payment is likely going to drop because of the equity infusion.  I may even be able to shorten the loan to five or ten years which would be good.  Thanks for the insight on the interest rates.

[RJBrown]

Try First Pryority Bank http://www.1st-of-pryor.com/ They want our loan business.

[Earl]

Quote: RJBrown

Try First Pryority Bank http://www.1st-of-pryor.com/ They want our loan business.

[Mcstealth]

Quote: ehscott

 

What do you think will drive up rates before the end of the year?  I have gotten several emails from various research groups (Merrill Lynch, Fidelity, etc.) and all are predicting rates will be flat until the housing market and job market really begin to recover, neither of which are predicted in 2011.

[flight2000]

If you haven't done a refinance loan for an upgrade in awhile, the rules changed last summer with regards to the payout to the company doing your upgrades.   The banks will no longer cut a check to you for the upgrades once the loan is finalized.  The money now has to go into an escrow account until the work is completed before they will release it. I heard the same story from three banks when I enquired about refinancing options.

IMHO, this change will hurt a lot of smaller shops that do not have the working capital to make the equipment purchases without a deposit from the owner up front because most avionics manufacturers are net 30. Not many shops can work that fast when installing a G500/G600/STECs/ASPENS etc and not screw it up because they are rushing to meet a financial deadline.  I'd rather they take their time and do it right the first time.  A couple of bad apples screwed the rest of us...

I ended up just paying for the new upgrades myself because of the rule changes from last summer.

Brian