What Are the Risks? What’s in the Fine Print?
The eased limitations of PMLs come with potential pitfalls, and physicians should not imagine that they have unlimited buying power.
“Many physicians buy more expensive or bigger houses than they need simply because banks are willing to lend physicians money,” Dr. Soelberg warns. “So, the doctor gets locked into a large mortgage and cannot build wealth, save for retirement, and repay their student loans.”
As you shop around, beware of omissions and scams. When meeting with lenders, Dr. Frey recalled that some didn’t even present PMLs as an option, and others presented them with unfavorable terms. He was careful to look for disadvantages hidden in the fine print, such as a potential “big hike in the rate a year later.”
But sometimes, a scam is not outright deception but is more like temptation. So it’s important to have your own best interests in mind without relying on lenders’ advice.
“When we were shopping around, some mortgage lenders would [offer] $1.5 million, and we thought ‘that makes no sense,’ ” said Dr. Frey. “[Physicians] have big future income, which makes us attractive to these lenders. No one in their right mind would give a mortgage like this to anyone else. They aren’t worried about whether it’s a smart decision for you or not.”
What Other Red Flags Should You Look Out for?
Dr. Frey recommends medical professionals beware of these red flags when shopping for PMLs:
- A request for any type of collateral, including your medical practice
- A rate that is much higher than others
- A lender is pushing you to borrow a higher amount than you’re comfortable with
- A lender attempts to influence your decision about the size of your down payment
Remember, if you are choosing an adjustable-rate mortgage (ARM), your rate will recalibrate on the basis of the market’s rates — for better or worse. This means that your payment might be higher or lower, taking current interest rates into account, based on the market.
Looking back, Dr. Frey said he might reconsider his decision to use a 10-year ARM. He and his wife chose it because the rate was low at the time, and they planned to pay off the mortgage quickly or move before it went up. But the uncertainty added an element of pressure.
How Can PMLs Contribute to Overall Financial Health?
Dr. Frey says his physician mortgage was “a huge advantage,” allowing him and his wife to put 0% down on their home without PMI. But most importantly, it fit within their overall financial plan, which included investing. “The money that we would have potentially used for a down payment, we used to buy a rental property, which then got us more income,” he says.
Of course, buying a rental property is not the only path to financial health and freedom. Many people approach a home as an investment that will eventually become fully their own. Others might put that down payment toward building a safety net of savings accounts.
Used strategically and intentionally, PMLs can put you on a more predictable financial path. And with less money stress, buying a home can be an exciting milestone as you plan your future and put down roots in a community.
A version of this article appeared on Medscape.com.