Beware Of Mortgage Refinancing Traps - part 1
by Christine Carter
The mortgage lending business is highly competitive. And that, my dear reader, is an understatement. It is like saying that the Pacific Ocean has many gallons of water in it. Even Donald Trump this week decided to enter the mortgage arena with the hyped up launch of Trump Mortgage from Las Vegas.
With literally thousands of companies all competing for a finite number of borrowers, the temptation exists to use tricks, gimmicks, and even outright deceit to obtain more home purchase or mortgage refinancing customers. Most people like to assume that their doctor, dentist, pastor and banker are all fine upstanding citizens above reproach and would never resort to deceit for personal gain.
While that might be true for your doctor, dentist, and pastor, it likely might not be true for your banker, especially if your banker is advertising online with below market "introductory" rates. As with most things in life, if it seems too good to be true, it probably is. Banks, like most other businesses, exist to make a profit. If they are offering below market rates, you can bet your hard earned dollars that they will be getting their profit in some other manner.
It is those other hidden ways that lenders try to profit from that you need to guard against. These other ways are usually buried in the fine print of the paperwork, and more often than not are more expensive than simply opting for the current prevailing interest rate.
Trap 1: Prepayment Penalty
For many years prepayment penalties all but disappeared from the mortgage lending scene. Unfortunately, they are making a comeback. Usually prepayment penalties are inserted into the loan documents by the lender to get additional profit. This is especially true if you have a below market interest rate. What the lender would have received in interest payments is instead received as a prepayment penalty when you pay the loan off early (and early can be any time before your last payment is due 30 years from now).
Trap 2: Negative Amortization
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Beware Of Mortgage Refinancing Traps
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