Avoiding Refinancing MistakesRefi Mortgage Loan: Avoiding a Mortgage You Will RegretRefinancing can save borrowers a great amount of money, provided that they aren’t taken advantage of by the new lender. Mortgage lenders typically operate honest businesses, but there are a number of people out there that prefer profits over honesty. Dirty lenders like these can cost thousands of dollars in excessive and unnecessary fees, and could still end up taking your home from you. The following is a primer on how to recognize a dishonest mortgage lender or broker:
Refi Mortgage Loan: How To Avoid a Mortgage You Will RegretIf you aren’t taken advantage of by your new lender, refinancing your mortgage can save you money. The majority of mortgage lenders are honest business people; however, there are some mortgage lenders that forego honesty for profits. Dishonest lenders will cost you thousands of dollars in unwarranted fees and could possibly take your home. There are several signs to help you recognize a dishonest broker or mortgage lender. Homeownership is an pricey undertaking. Homes are the single largest purchase most people will make in their life. Managing finances is stressful enough when it comes to mortgage loans so if you refinance with a deceitful lender your vision of homeownership will quickly transform into a mortgage nightmare. Prepayment Penalties - BewareThe first way to spot a fraudulent or “predatory” lender is by the use of prepayment penalties. Dishonest lenders incorporate extreme and unrealistic penalties in the loan contracts. The penalty serves to discourage you from, in the future, refinancing the loan. Arbitration Clauses - BewareNever agree to a mortgage contract that includes an arbitration clause. Arbitration means that you agree never to take legal action of any form against the lender. If a problem with the loan arises, you will be obligated to settle the disagreement with a third party arbitrator, forfeiting many of your legal rights. Bypassing many of the laws protecting homeowners is the reason lenders include arbitration clasues. Excessive Interest Rates & FeesPredatory mortgage lenders are infamous for charging disproportionate fees and interest rates. Comparison shopping from a variety of lenders and brokers is the best way to avoid paying too much for your new mortgage. Comparison shopping allows you to distinguish fair fees and rates for a borrower in your financial situation; when you do this you will easily spot a lender that is overcharging customers. Pitfalls in RefinancesFee & Rate SurpriseThe largest surprise is a change in the loan that occurs when you go to sign your documents. The interest rate may have changed significantly, or the fees may have risen substantially. These numbers may have risen drastically since the initial good faith estimate that you received. Make sure that you have the option to back out, when you go to sign your loan documents. If you have the power to back out at any time, you have the power to negotiate with the lender. You should not allow yourself to get backed into a corner when refinancing. Occasionally rates and fees may change legitimately, based on credit rating or other unforseen circumstances. Sometimes when a lender sees a red flag on your credit report at the last moment, they may even cancel the loan completely. Debt Payoff SurpriseYou may have debts that a mortgage lender will want to pay off, including credit cards, car loans, student loans and other miscellaneous debt. You may also end up having to pay off a loan that you co-signed on for someone else. Since you have legal and financial liability, you are required to pay it off if the lender wants you to. Check first to make sure you are not going to hit any such problems before refinancing. Lenders instruct escrow to pay of these debts to make sure the debt will be paid off. Costly Refinancing situationsOut of every ten homeowners looking to refinance their homes there will be four of them that will end up in a worse situation then the one they started in. Even though these homeowners willingly refinance their homes most will come to regret the choice that they made. Mistakes that are made in other venues can generally be ignored as they are usually fairly minor, however the same cannot be said for mistakes in the mortgage market as mistakes here can be extremely costly. Bad Refinancing DecisionsBad refinancing decisions usually occur when a homeowner ends up in a worse financial position in the future then they would have been if they had never refinanced. This can include taking a cash out refinance when it was very likely that needed funds could have been raised from a much less costly source. There are basically three reasons that a homeowner makes a poor refinance decision. They are Shortsightedness by the homeowner, Meretricious Mortgages and a Dysfunctional Incentive System among lending companies. Shortsightedness by the homeowner generally occurs when a homeowner is generally too focused on either what they are currently paying monthly to see a long term benefit or how excited they are at getting a large amount of money from something like cash out refinancing that they don’t consider the long term costs. The terminology “meretricious mortgage” refers to a mortgage that is too good to be true. Basically it is a mortgage that looks great but upon further inspection is really not such a great deal. A great example of this is the adjustable rate mortgages with flexible payment options or interest only options. These types of mortgages have become very popular with homeowners looking to get lower monthly payments. They however do not take into account how much these will actually cost in the long run. A poorly put together incentive system by lending companies can also lead to bad refinancing decisions. Most all in the mortgage industry are only paid if a mortgage closes, as many homeowners tend to avoid lending companies that have a charge for informational services. While there are lending companies out there that absolutely will not refinance a homeowner that will see no financial benefit the rest of the market is determined to close as many mortgages as possible. These types of lenders will use whatever means possible to get a homeowner to close on a loan whether it is a good deal for them or not. The best way for homeowners to stop this from occurring is to be well informed about refinancing procedures and to make sure to utilize the three day rescission policy if necessary. Refinancing that makes you poorer:Out of every ten potential borrowers looking to refinance a mortgage, three or four of them will generally end up poorer than before the refinance. Despite the fact that all borrowers participate completely willingly, many will come to regret their decision. Bad decisions can be safely ignored in most markets because the costs of mistakes are generally very small and teach great lessons to the people who make them. These people will make better decisions the second or third time around. However, transactions in the mortgage market are large and infrequent enough that the mistakes made there are much more costly.
|
