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Get Low Refinance Rates From Just 2.12%.

7 Mortgage Mistakes That Make You Feel Dumb

If you’re considering taking advantage of today’s lowest refinance rates the mortgage process can be expensive and intimidating. There’s a lot to take in and mistakes can cost you thousands of dollars. Many homeowners take the easy way out by focusing on just one aspect of mortgage refinancing like getting the lowest refinance rates. With that in mind, here’s a list of seven common mortgage mistakes to avoid when refinancing your home.

  1. Neglecting To Do Your Homework
  2. For most of us our homes are the single largest purchase we make…ever. Despite this many people barrel through refinancing like they’re buying a kitchen appliance. This approach almost always results in overpaying at every turn.

    Investing the time necessary to learn about home loans and mortgage refinancing will help you avoid common mortgage mistakes like paying discount points or comparison shopping with the Annual Percentage Rate.

    Understanding how your credit affects your mortgage rates, your home loan’s amortization, mortgage insurance and the Truth-in-Lending disclosures will save you a lot of money as a homeowner.

    Using a basic mortgage calculator when budgeting for your mortgage payment also helps choose a term length that saves you money without stretching your budget. Not sure where to start doing your homework? My Underground Mortgage Videos have the information you need to avoid paying lender junk fees in one place for just an hour of your time.

  3. Not Checking Your Credit First
  4. The refinance rate quotes you get when shopping for your next home loan are based on your credit. If the refinance rates you’re being offered are higher than what lenders are advertising the likely culprit is your credit score.

    Before you do anything else when refinancing the first thing you need to do is check your credit reports for errors. Nothing will sink your credit score faster than having negative information incorrectly reported on your credit reports. Visit AnnualCreditReport.com to get free copies of your credit reports once per year.

    Most banks and credit unions offer low cost credit monitoring services that allow you to monitor changes in your credit score. Once you’ve reviewed your credit reports and are satisfied that they’re accurate the quickest way to improve your credit score is to pay down the balances on all of your credit cards below 30% of the credit limit.

    Be sure and allow enough time for the new balances or corrections to affect your credit score before you begin shopping for the lowest refinance rates; this is where a credit monitoring service can come in handy.

  5. Not Shopping Around From Today’s Best Mortgage Lenders
  6. You’d be surprised how many of your neighbors don’t put out the effort to shop around for their mortgage. Most simply pick the lender advertising the lowest APR in your area. Others simply rely on their bank as a matter of convenience. Either way the majority of your neighbors paid too much for their home loans.

    Truth be told mortgage offers and fees vary significantly from one mortgage lender to the next. Most lenders have their marketing department structure their home loan offers and manipulate the Annual Percentage Rate with discount points to make them seem more attractive. This is why choosing the mortgage quote with the lowest APR often gets you the highest out-of-pocket expenses.

    Don’t assume that major banks like Bank of America or Wells Fargo will have the best deals. Often you’ll find the lowest fees come from local community based credit unions, many of which have membership open to the public.

    Bonus Tip: Never choose a mortgage based on the Annual Percentage Rate. Base your decision on the fees found in section 800 of your HUD-1 Settlement Statement AND zero point refinance rates.

  7. Choosing a Mortgage Solely Based On Refinance Rates
  8. This is probably the single most common mortgage mistake and it’s easy to understand why. The refinance rates you get along with term length affect what your payment will be month in and out. You might think the fees you’re paying are a small price to pay for getting the lowest payment; however, they can quickly turn that low refinance rate into an expensive mistake.

    This is why the break-even point is so important with mortgage refinancing. Basically if you’re not able to recoup the fees you’re paying for loan origination and any unnecessary discount points you’re going to be losing money no matter how low your interest rate.

    You can approximate your break-even point by adding up all of the fees you’re paying at closing and dividing by how much your mortgage payment will go down each month. Suppose you’re saving $80 a month by refinancing and it’s going to cost you $4,000 to close. Your break-even point is 50 months, ($80/$4000 = 50) which is just over 4 years.

    If you sell or refinance again before breaking even you’re going to be losing money no matter how attractive the interest rate. It’s worth noting that this calculation is only valid if you keep the same term length when refinancing. That is, choosing a 30-year fixed rate mortgage to replace your existing 30-year mortgage. If you choose a home loan with a longer term-length it’s going to be impossible to break even because of the higher finance charges over the lifetime of your home loan.

  9. Not Considering ALL Closing Costs
  10. There are more fees to consider than your loan origination fee as well as tax considerations. Remember while getting today’s lowest refinance rates might do wonders for your monthly payment your mortgage interest tax deduction is going to be much smaller come April.

    Other considerations include mortgage insurance, which can drive your payment up by hundreds of dollars, property taxes, and your homeowners insurance.

    This is why using a mortgage calculator when refinancing can help you plan your budget, which needs to include all of these secondary expenses.

  11. Not Paying Attention To Your Closing Documents
  12. Closing on a new mortgage is all about paperwork. There’s a contract to sign and a whole lot of disclosure documents. The truth-in-lending disclosure statement, Good Faith Estimate, and the HUD-1 Settlement Statement can be confusing and often have different amounts for the same fees.

    Remember your Good Faith Estimate is only an estimate and could change fore your sign the final documents. (Pay close attention to and question all section 800 fees.)

    When it comes to fees your HUD-1 Settlement Statement is the final word and should be carefully reviewed to make sure there are no surprises.

    What can you do if you’ve closed and find something on the HUD-1 that’s not correct? You have three business days to change your mind when refinancing before the mortgage loan is funded. You can walk away at any time during three business days (including Saturday) and you’ll probably only be out the application or rate lock fee.

    This period is your mortgage refinancing three-day rescission period so if you catch something after closing your have a parachute if you want to walk away from the loan. Loan officers don’t like to talk about the rescission period but if you’d like to execute your rights you’ll need to notify both the lender and your broker in writing (by fax).

  13. Giving Into a Pressure Sales Pitch
  14. Don’t let a pushy loan officer or mortgage broker pressure you into a bad home loan. Remember these people are salespeople and their commission often depends on how much you’re paying (or overpaying).

    Despite new regulations intended to protect homeowners many lenders and mortgage brokers engage in deceptive practices intended to push you into an overpriced home loan.

    Pressure sales tactics include steering you to a mortgage with junk fees including unnecessary discount points. Rate lock fees, administrative fees, application fees and processing fees are all garbage and can be negotiated away as a condition of getting your business.

    Even if you don’t have the cash to pay for closing and are accepting higher refinance rates in exchange for having the lender pay your closing costs you still need to pay attention to the fees you’re being charged. Anything you’re paying out-of-pocket or trading for a higher interest rate reduces the benefit you’re getting from mortgage refinancing.

    Finally, make sure you’re getting everything in writing, including your rate lock. If you don’t have your mortgage terms and lock in writing it never happened. Don’t expect a lender to honor any terms that you don’t have in writing up front.

Click Here For More Details…

You can learn more about getting the best deal on your next home loan by avoiding unnecessary fees and markup by checking out my free Underground Mortgage Videos.

  • Underground Mortgage Videos
Here’s a quick sample to get you started refinancing with today’s best refinance rates without paying junk fees…

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When Mortgage Refinancing Isn’t The Answer

One of the most common mortgage mistakes is neglecting to answer the question “Should I Refinance My Mortgage?” You might be surprised to find that the answer to your question is simply “No.” Sure refinance rates are near their lowest levels ever but that doesn’t always justify the expense. Here are five reasons to avoid a costly mistake from mortgage refinancing at the wrong time.

The Downside of Mortgage Refinancing

Most people get so hung up on the possibility of saving cash by refinancing that they don’t consider the downside of taking out a new home loan. The downside exists and can quickly turn low refinance rates into an expensive mistake.

Here are five reasons to avoid refinancing your home mortgage loan:

  1. You’re Not Long For Your Home
  2. It’s easy to say I’m comfortable in my home and am staying put. Next thing you know you’re whammied with a new job, promotion, or are getting married and it’s time to sell. Granted you can’t plan for situations like this but if the possibility of moving is on the horizon you might want to reconsider refinancing.

    The reason you need to be staying put when refinancing is that it takes time to reach your break-even point for out-of-pocket expenses. Breaking even means you’ve reached the point where your savings eclipse the closing costs you paid getting a new home loan. Typical closing costs including your broker’s loan origination fee will run you 2-4% of your mortgage balance and this isn’t an expense to take lightly.

    Suppose you’re refinancing $250,000 and saving .5 percent on your interest rate. If your payment is going down $80 a month but it’s costing $4,000 to close it’ll take you 50 months, just over four years before you’ll benefit from that lower payment. Sell or refinance again before that time is up and you’re losing money.

  3. Your Closing Costs Are Too Expensive
  4. This mistake is along the same lines as the first reason. You might qualify for a ridiculously low refinance rate but have to pay a huge broker origination fee or discount points to get there. If you don’t have the cash on hand to pay your out-of-pocket expenses it might be tempting to accept higher refinance rates to have the lender pay the broker fee and closing costs for you.

    Keep in mind anything that raises your out-of-pocket expenses or increases your refinance rates reduces your benefit from mortgage refinancing. If you roll these costs into your loan balance you’re reducing your home equity increasing your risk of being underwater. You need to decide if the deferred savings you’re getting are worth the cash it’s costing you to get there.

    One of the most commonly overpaid mortgage expenses is the loan origination fee. This is paid to the person arranging your home loan and even if the lender pays it you could still be overpaying based on the increase in your interest rate. There are no free lunches when it comes to home loans so if a broker is telling you someone else is paying for you take a hard look at what you’re giving up in exchange.

  5. Your Credit Score Isn’t What It Should Be
  6. If you’re finding the refinance rate quotes lenders are giving you are higher than what they are advertising the likely culprit is your credit score. If you’re sitting in the 600 range mortgage refinancing is simply not a good idea. It’s not that there aren’t lenders out there that will approve you, just that you won’t qualify for the attractive refinance rates offered to homeowners with higher credit scores.

    You might be tempted just to bite the bullet and refinance with the interest rate you’re offered; however, investing a little time in improving your credit score will pay dividends well beyond your mortgage loan.

    The first step to improving your credit score is to visit the website AnnualCreditReport.com. Congress passed a law stating the three credit reporting agencies (Experian, Equifax, and TransUnion) are required to give you a free credit report every year. You won’t get a credit score with these reports but will have the option to purchase one if you like.

    Once you have your three credit reports check them carefully for errors. If you find mistakes you’ll need to dispute the error in writing with each credit bureau. Be sure and allow enough time for the correction to be reflected in your credit score before submitting your mortgage refinance application.

  7. You’re Choosing a Shorter Mortgage Term Length
  8. Refinance rates on 15 and even 10-year mortgages are at rock-bottom levels. You might be tempted to stuff what’s left of your 30-year mortgage into a 10 or 15-year refi. This will save you a ton of money in finance charges over that 30-year fixed home loan but it might not be the smartest move.

    Paying a couple hundred dollars more every month might not seem like a big deal while you’re doing the paperwork but it can cause a real burden on an already stressed budget. If you hit a rough patch down the road you won’t have the ability to scale back your payment. Can you spare the cash in your monthly budget to afford that higher payment amount? (Now and how about later down the road?)

  9. You’re Choosing a Longer Mortgage Term Length
  10. Remember that calculation from earlier for figuring out your break-even point on out-of-pocket expenses? That calculation is only valid if you choose a home loan with the same term length or go shorter. If you refinance with a longer term length it’s going to be impossible to break even recouping your closing costs due to higher financing of those extra years.

    This is true of mortgage refinancing a 15-year home loan with a 30-year or even a 40-year mortgage. While it’s true that you’re getting a lower monthly payment by spreading your mortgage out over more time, you’re also increasing the total interest you’re paying over the duration of your mortgage.

    Another problem with mortgage refinancing regardless of the term-length you choose is that since you’re getting a brand new home loan you’re resetting the clock your mortgage amortization schedule.

    Amortization is the process of paying down your home loan. Because mortgage loans are front-loaded with interest in the early years the majority of your payment goes to paying the lender before paying down your principal balance. This gradually reverses over time and more of your payment goes to building equity. Once you refinance you reset this amortization clock and you’re back to stuffing cash in your lenders pockets.

Have You Decided Mortgage Refinancing Is The Right Move?

If you’ve decided to go forward with mortgage refinancing there are steps you can take to get the maximum benefit from today’s low refinance rates. The less you pay for the loan origination fee and other closing costs while avoiding discount points the sooner you’ll break even recouping those out-of-pocket expenses.

The mortgage fees you can negotiate to pay less are found on section 800 of your Good Faith Estimate. Here you’ll find your loan origination fee and lender junk fees like administrative and processing fees.

Negotiate these fees down or away and you’ll get the maximum benefit from a new home loan with today’s best mortgage lenders.

Click Here For More Details…

You can learn more about paying less for your next home loan by avoiding lender fees and discount points by checking out my free Underground Mortgage Videos.

  • Underground Mortgage Videos
Here’s a quick sample to get you started refinancing with today’s lowest refinance rates…

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Mortgage Refinancing For Beginners

If you’re new to the world of home loans mortgage refinancing can be a complicated and confusing process. No one wants to overpay for his or her home loan and while refinancing is supposed to save you money it’s easy to blow it at closing. Here’s the only beginners guide to getting the best mortgage refinancing deal you’ll ever need.

Mortgage Refinancing Means Re-Verifying

The end goal of mortgage refinancing is to save money. You accomplish this by taking advantage of today’s low refinance rates to get a new home loan to pay off and replace your existing mortgage.

The problem with mortgage refinancing is that every home loan has fees and if you’re not able to offset your out-of-pocket expenses from your savings (in the form of a lower payment) you’re losing money no matter how great your refinance rates.

Mortgage refinancing gets you a brand new home loan with new terms and a new loan contract. You’ll undergo the same approval process you went through when you first purchased your home. Mortgage approval and the underwriting process that gets your home loan funded is going to cost you money. The less you pay going through this process, even if your fees are being bundled into the balance, the better off you’ll be.

What do lenders look at when approving your mortgage refinance application?

  1. Your Credit: Specifically, Your Credit Score & Mortgage Payment History
  2. Your Employment History & Income
  3. Financial Assets Including Cash & Debt Balances

In addition to your credit, income, employment and assets your home’s value will be appraised for it’s most recent value. (With a few exceptions, mainly the government refinance program HARP 2.0)

Different lenders have different standards for underwriting so if one denies your mortgage refinance application, another lender could approve you. Remember once your application is approved and completes underwriting you’re getting a brand new home loan.

There are three categories of mortgage refinance transactions; rate & term refinance, cash-in refinancing, and cash-out refinancing. The type of transaction you refinance your home with depends on your needs and personal situation.

Rate & Term Refinancing

If you choose a rate & term refinance transaction the only difference between your original mortgage and the new one are the refinance rates and term length. Term length is the duration of your home loan and along with your refinance rates determines your payment amount. One of the most common term lengths for rate & term refinancing is 15 years.

If you elect a rate and term refinance for your next home loan you cannot cash out equity in your home for more than $2,000. You will have the option of rolling your closing costs including the loan origination fee into your mortgage balance.

Cash-Out Refinance

With a cash-out mortgage refinance, your new home loan could have a lower interest rate and a shorter term length than your original loan. The difference with cash out refinancing is that the loan balance is higher because you’re getting cash from your home equity at closing. This cash can be used for any reason and will be higher than $2,000, depending on how much home equity you have.

Cash out mortgage refinance loans are risky for lenders and come with higher interest rates and underwriting standards than rate and term refinancing. You might have your rate and term refinance application approved but find the same lender denies cash out mortgage refinancing.

The risk for homeowners from cash-out refinancing is that you’ll find yourself underwater in declining home markets. Being underwater means you owe more than your home is worth and often closes doors when it comes to your credit.

Cash-In Mortgage Refinancing

Cash-in refinancing refers to paying down your loan balance at closing. There are situations where you’d want to do this as well as situations where a cash-in refinance doesn’t make sense. Cash-in refinance transactions may have low refinance rates and shorter term lengths. The most common reason for electing a cash-in refinance transaction is to take advantage of low refinance rates when you have a less than favorable loan-to-value ratio.

This type of mortgage refinancing only makes sense if you’re close to an 80% loan-to-value ratio. Any more and the cost outweighs the benefit especially when government refinance programs like the Home Affordable Refinance Program (HARP 2.0) can get your mortgage refinance approved without paying out-of-pocket.

Government Refinance Programs

There are other options for mortgage refinancing depending on your situation. If you have an FHA backed home loan consider an FHA streamline refinance. If you have a VA home loan the VA’s Interest Rate Reduction Refinance Loan (IRRRL) works just like a streamline refinance.

Streamline mortgage refinancing has easier qualifying standards and reduced paperwork allowing qualified homeowners to take advantage of low refinance rates with minimal effort.

Finally, if you’re underwater (meaning your loan-to-value ratio is above 80%) you might qualify for the government’s Home Affordable Refinance Program (HARP 2.0). The problem with a HARP refinance is that Fannie Mae or Freddie Mac must back your mortgage before June 1st, 2009. If a bank like Wells Fargo privately holds your mortgage loan unfortunately you’re not eligible for HARP.

If you’re with Fannie Mae or Freddie Mac and have been making your payments on time you’re ready to begin shopping for a HARP lender.

Not HARP 2.0 eligible because your home loan is privately held? Rumors are that HARP 3.0 will remove the Fannie Mae, Freddie Mac requirement entirely. Stay tuned for more on HARP 3.0 as it makes its way through Congress.

How to Pay Less For Your Next Home Loan

The test of how good of a deal you’re getting on your mortgage refinance comes not from the refinance rates you’re getting but how much it’s costing you to get that lower rate. Closing costs will make or break the deal you’re getting every time. Pay less at closing and you’ll benefit more from today’s low refinance rates.

Click Here For More Details…

You can learn more about getting the best deal on your next home mortgage without paying lender junk fees by checking out my free Underground Mortgage Videos.

  • Underground Mortgage Videos
Here’s a quick sample to help you get more from today’s best mortgage lenders for less…

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Should I Refinance My Mortgage Now?

Most people refinance to get a lower mortgage payment; however, many neglect to consider how much refinancing is going to cost them. If you overpay at closing by paying too much for the loan origination fee or unnecessary discount points you could be losing money no matter how low refinance rates drop. Here are several tips to help you answer the question should I refinance my mortgage now.

Getting The Lowest Refinance Rates At All Costs

One of the most common mortgage refinancing mistakes is focusing on getting the lowest refinance rates at the expense of fees. If you’re not able to break even recouping your closing costs from the lower payment amount you’re going to be losing money no matter how low your interest rate. Doing the math when shopping for a mortgage rate is the best way to make sure you’re not wasting time and money refinancing.

Here’s how to factor in time and fees to see if you should refinance your mortgage. How much you’ll save at the end of the day depends on how long you plan on keeping the loan and how much you’ll pay at closing. Keep in mind that the average homeowner refinances every 4-5 years so you need to recoup your expenses before taking out a new loan.

First, add up all of your mortgage fees including any discount points, mortgage loan origination, the appraisal, title insurance, underwriting, attorney fees, and administrative fees. You can use the Good Faith Estimate for this, paying close attention to section 800, which is where you’ll find fees you can negotiate as well as lender junk fees.

Refinancing Affects Your Mortgage Interest Deduction

Second, calculate how much you’ll be saving with the new refinance rates by subtracting the new, lower mortgage payment from how much you’re paying now. You can factor in your tax expenses by multiplying this savings amount by your combined federal and state tax rate. Many homeowners don’t realize they’ll be taking a hit on their mortgage interest tax deduction until the following year, meaning your tax liability could go up as a result of refinancing your mortgage loan.

You can calculate your net savings from mortgage refinancing by subtracting your tax costs from your monthly savings from the previous step. Remember, cheaper mortgage loans result in smaller tax benefits for you.

Finally, calculate your break-even point by diving your total mortgage closing costs by your net savings and you’ve got the number of months it’s going to take you to pay off the cost your new home loan. It’s worth mentioning that this calculation is only valid if you choose a mortgage with the same term length as your old loan, 30-year to 30-year home loan for example.

If you go shorter, with a 15-year mortgage your break-even point will come sooner than what you’ve calculated. If you go with a longer term length you’ll basically never break even because of higher finance charges for those extra years so this calculation is no longer valid.

Here’s an example to illustrate how this break-even calculation works:

Suppose your net savings are $150 each month based on today’s lowest refinance rates. Your closing costs including the loan origination fee total $3,500. Based on these figures it will take you two years to break even before you realize any savings from mortgage refinancing. ($3,500/$150 = 24 months) If you’re planning on selling your home within two years refinancing is probably not a good idea.

Beware Hidden Mortgage Costs

If you’ve decided to go forward with mortgage refinancing you need to make sure your existing home loan does not include a prepayment penalty. If your mortgage contract does include a penalty for early payoff make sure you’re including this expense in your break-even calculation. A typical prepayment penalty will set you back as much as six months interest on 80% of your mortgage balance.

Discount points are another fee you’ll want to avoid whenever possible. Comparing loan offers when shopping for the lowest refinance rates is best done with zero point quotes, even though most lenders fill their tables with offers that include points.

Click Here For More Details…

You can learn more about getting the best deal on your next home loan without paying junk fees by checking out my free Underground Mortgage Videos.

  • Underground Mortgage Videos
Here’s a quick sample to get you started refinancing today without overpaying at closing…

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You probably know a braggart or two. You know the type…they love to brag about how great and smart they are. If you’ve ever heard someone talking about what a great mortgage rate they’ve got after refinancing you might wonder how much they paid to get that interest rate. Did you know the fees you pay at closing make or break the deal you’re getting? Here are several tips for paying less and truly getting the best deal on your next home loan.

Why Refinance Rate Shopping Doesn’t Work

For most people refinance rate shopping is letting a lender talk you into a home loan or program they’re promoting. That’s called mortgage fishing and not shopping around for the lowest refinance rates. Making an apples-to-apples comparisons of mortgage loans from different lenders is difficult, often downright impossible.

One problem with shopping for refinance rates is that different lenders all quote interest rates differently. Instead of advertising offers with the lowest refinance rates you’ll find lenders pushing home loans with the lowest APR.

Annual Percentage Rate is the most manipulated and abused marketing tool in your lender’s arsenal. More often than not, the home loan with the lowest mortgage rate has the highest out-of-pocket expenses due at closing. You might get the mortgage rate you were shopping for only to get fleeced with discount points, loan origination fee, commitment fees, administrative fees and underwriting charges.

One of the most common ways lenders manipulate APR is with discount points. Because points are a form of pre-paid interest, paying discount points lowers the Annual Percentage Rate. One discount point is one percent of your loan amount paid at closing and lenders use this to buy down your refinance rate by .25 percent.

How to Shop For The Lowest Refinance Rates & Fees

If you want a better way to shop your next mortgage try and get all of your quotes for the same timeframe, usually 30 days. Ask for quotes that do not include discount points with and without the origination fee. Ask for a detailed list of charges particularly from section 800 of the Good Faith Estimate. Section 800 is where you’ll find all of the fees that go into that APR calculation along with any junk fees like processing, administration, the loan origination fee or unnecessary discount points.

Section 800 is where you should focus your energies when shopping for refinance rates. Charges like attorney fees or title insurance paid to third parties aren’t important when rate shopping. Don’t rely on a total “estimate” of closing costs; just ask for a detailed explanation of section 800 fees.

Yield Spread Premium Still Exists

Every now and again I get a snotty comment from a broker or loan officer saying my information is outdated and Yield Spread Premium is no longer relevant thanks to changes in the laws governing compensation.

Yield Spread Premium didn’t go away. What changed is that your mortgage broker cannot accept lender paid compensation in the form of Yield Spread Premium AND charge you a loan origination fee. It has to be one or the other. You can take higher refinance rates in exchange for the lender paying your origination fee and/or closing costs. (That’s what Yield Spread Premium DOES.)

What you need to think about is how higher refinance rates affect your ability to break even recouping your closing costs. That’s what refinancing is all about. How much are lower refinance rates going to cost me and will I ever get that money back from a lower payment amount?

If you can satisfactorily answer that question and the timeframe for breaking even is acceptable to you then you’re doing a good job refinancing your mortgage. If you want the maximum benefit from today’s lowest refinance rates then you need to pay close attention to section 800 and negotiate to pay as little as possible for loan origination and lender fees.

Click Here For More Details…

You can learn more about paying less for your next home loan with today’s best mortgage lenders by checking out my free Underground Mortgage Videos.

  • Underground Mortgage Videos
Here’s a quick sample to get you started refinancing without overpaying the mortgage broker fee or closing costs…

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