Refinance Home Mortgage Guide

There are a number of mistakes homeowners make when shopping for mortgage.  To avoid making these mistakes you need to do your homework and shop from a variety of mortgage companies for the best deal on your loan.

Predatory mortgage lenders prey on homeowners that have not done their homework and do not understand how mortgages work.  Don’t be victims of predatory lending practices; research your mortgage prior to signing the contract.

Mortgage lenders disguise fees; these charges are often buried in the paperwork. Here are some of the ways lenders try to disguise their fees.

Avoid Prepayment Penalties

Prepayment penalties are designed to discourage you from refinancing the mortgage.  If you sell your home or refinance the mortgage with a prepayment penalty in your contract you may be required to pay as much as six months worth of interest on the loan.  Demand that your lender removes any prepayment penalty from your loan contract; if the mortgage lender refuses take your business somewhere else.

Option Mortgage Payments

Some mortgages advertise minimum monthly payments.  These “option” mortgages do not repay enough each month to cover all of the interest due.  The interest that is not paid is added on to the principal loan balance.  If you make the minimum payment each month, not only will you never pay off the mortgage, your mortgage will grow each month.  This phenomenon of mortgage growth is called “negative amortization.”  As time passes the value of the home will not be enough to secure the balance of the mortgage.
 
Bait-and-Switch Interest Rates

Mortgage that advertise incredibly low interest rates are advertising a “discounted interest rate.”  This interest rate is only valid for an introductory period.  At the end of this introductory period the lender will adjust the mortgage interest rate to the actual value, plus lender markup.  If you are not careful you easily overpay for your mortgage with this adjusted interest rate.

To learn more common mortgage mistakes you need to avoid, sign up for our free guidebook: “Five Things You Need to Know before Refinancing Your Mortgage.”

There are a variety of high risk mortgages on the market today.  Many homeowners today sign up for these mortgages without fully understanding the risks involved.  Here are the riskiest mortgages available and why should avoid them.

Option Mortgages

This is the most dangerous mortgage on the market.  This mortgage comes with four payment options and an adjustable interest rate.  The first repayment option has payments amortized for 30 year repayment.  The second repayment option is amortized for 15 year repayment.  The third repayment option is based on interest-only payments.  The fourth option is the “minimum payment” option.  This minimum payment does not cover all of the interest due each month on the mortgage.  The interest that is not paid is added on to the principal loan balance.  This growing principal balance is a phenomenon called “negative amortization.”  This means not only will you never pay off the loan; your balance grows each month.

Interest Only Mortgages

Interest only mortgages are another type of risky mortgage.  The monthly payment amount on an interest only mortgage is only enough to cover the interest due for that month.  This loan does not repay any of the principal balance due on the mortgage.  These loans are interest only for a specified period of time; at the end of this time the principal balance will be due.  This loan could require a balloon payment at the end of the interest only period.  If the homeowner is unable to refinance and pay off the balloon payment they could lose their home in foreclosure.

Piggy Back Loans

Piggy back mortgages allow individuals that do not have enough cash to pay the down payment on their mortgages.  This “piggy back” is a second mortgage that allows the homeowner to finance their down payment. The advantage of a piggy back loan is that you will qualify for the loan without paying for Private Mortgage Insurance; Private Mortgage Insurance can add hundreds of dollars to your monthly payment amount.

The problem with this piggy back loan is that it is secured by your home.  If you fall behind on the payments you risk losing your home regardless of the status of your primary mortgage.

As a homeowner looking for a mortgage you need to protect yourself from predatory lending practices.  Predatory lenders are any lender that takes advantage of homeowners for financial gain.  In order to protect yourself from predatory practices you need to learn the scams these lenders pull.

Here are three examples of predatory lending practices you will want to avoid.

Refinancing Required in the Mortgage Contract

There are lenders that require that a mortgage be refinanced at periodic intervals.  This could come in the form of a balloon payment or blatant automatic refinancing requirements.

Mortgage lenders profit from required refinancing by charging fees.  These fees are usually paid at closing; however, some lenders finance the closing costs by tacking them onto the loan’s principal balance.  When this happens the interest paid on those finance charges can quickly become extremely expensive.

These fees do nothing to help the homeowner; they only serve to line the pockets of the mortgage lender.

Requiring Additional Services to Qualify

Some mortgage lenders require homeowners to purchase additional services to qualify for the loan.  Requiring the purchase of credit life insurance, also called loan life insurance, is a predatory practice many mortgage lenders are guilty of.  Do not let your mortgage lender sell you an insurance policy, no matter what they tell you.  Predatory lenders practice high pressure sales tactics on overpriced insurance policies.  Always comparison shop for the best price no matter what you’re buying.

Excessive Mortgage Lender Fees

One example of excessive lender fees is the so called “no closing cost” mortgage.  Lenders boast that the mortgage will save you $2,000-$3,000 in closing costs.  What they bury in the fine print is the fact that they are charging as much as 2%-3% more for this loan than if you had paid the closing costs.  This higher interest rate will cost you 2-3 times more over the life of the mortgage.

Unscrupulous mortgage lenders hide excessive fees in their appraisals fees, attorney fees, processing, origination, and administrative fees.  Excessive prepayment penalties are another example of predatory lending practices.

To avoid becoming a victim of predatory lending practices you need to do your homework and research mortgage lenders and their offers.  To avoid making common mortgage mistakes sign up for our free mortgage guidebook.  For more information regarding Tucson Mortgage Refinance get “Five Things You Need to Know Before Refinancing Your Mortgage.”

Mortgage interest rates rose this week to their highest levels since the summer of 2002.  According to a survey of national mortgage lenders the average interest rate on a 30 year, fixed rate mortgage crept up to 6.49% this week.  Last week this 30 year mortgage fixed interest rate averaged 6.43%.

Mortgage analysts believe interest rates are up this week due to inflationary concerns following favorable employment data released by the government last week.  Higher inflation, coupled with higher energy costs, results in higher mortgage interest rates. 

Recent interest rate hikes come as bad news to nearly 1/3 of American homeowners that financed their homes using Adjustable Rate Mortgages.  These homeowners will see their payments go up significantly once the loans start adjusting their monthly payments to the current interest rates.

Some analysts predict mortgage interest rates could hit 7% by the end of the year.  As a result, home sales are expected to decline.  Home sales have been at record highs as a result of historically low mortgage interest rates.

Interest rates for 15 year fixed rate mortgages average 6.14% this week.  This 15 year fixed rate loan is up from 6.10% the week before.

One year adjustable rate mortgages averaged 5.61% this week.  This is up from 5.57% last week.  Five year hybrid Adjustable Rate Mortgages are up to 6.13% this week from 6.11% the previous week.