Refinancing your mortgage can save you money and lower your monthly payment amount. There are a number of mistakes homeowners make when refinancing their home loans; these mistakes can cost thousands of dollars and you could even lose your home to foreclosure. Here are several things to avoid when refinancing your home loan; three warning signs that could indicate the lender you are consider is engaged in predatory lending practices.
I. Beware Prepayment Penalties
Reputable mortgage lenders do not include prepayment penalties in their loan contacts. A prepayment penalty is a clause in the contract that requires you to pay the penalty if you refinance or sell before the penalty expires. Predatory mortgage lenders often include excessive penalties that can be as high as six months worth of interest on 85% of your original loan balance.
II. Never Agree to Arbitration
Another predatory tactic disreputable lenders use is including arbitration clauses in the loan contract. Agreeing to arbitration means you give up much of the protection homeowners receive under the law. Arbitration is a third party brought in to resolve any disputes you have with your lender. Never agree to arbitration when refinancing your home loan.
III. Watch Out For Excessive Interest Rates
Predatory mortgage lenders often trick homeowners with good credit into taking out bad credit loans. These lenders do this so they can charge higher rates and fees for the loan. The best way to be sure the interest rate you receive is fair for a homeowner with your credit is to shop from a variety of lenders. When you compare mortgage rates across a number of lenders it is easy to spot the disreputable ones.
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My name is Rob Regehr and I’m a personal finance writer with a chip on my shoulder for banks and brokers that take advantage of my friends and neighbors.
