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.”