Posts Tagged ‘crisis’
There has been a lot of interest in mortgage refinancing ever since the housing crisis hit and people are facing foreclosures. Homeowners realize that it’s a way to lessen their monthly obligations while still remaining in their homes. Of course, any time you have avid borrowers, there are going to be scams and dishonest lenders who are looking to make money off of someone else’s misfortunes. It is a good idea to refinance, especially when mortgage rates are so low, but there are a few pitfalls you need to look out for when doing so whether you’re doing a Madison finance or one in Los Angeles, CA.
1.Watch out for prepayment penalties. Although most people think of these as being something they would have to pay if they repaid their loan in a shorter time than the original agreement stipulated, they can be applied to refinance loans, too. Find out in advance if you are going to be subject to any prepayment penalties, and if there are, choose another lender. These penalties can be large.
2.In order to refinance your home, you’re going to need to have a new appraisal done. When the lender learns the results of this appraisal, it may bring about a reassessment of your house. If the value of your home has decreased, you may get a property tax break; however, if the value has increased since the previous assessment was done, you may be faced with a substantial increase in property taxes. In that case, will your refinance really do you any good?
3.Although adjustable rate mortgages (ARMs) often have lower interest rates which make them attractive to those wishing to refinance, you need to find out if the lower rate is only a gimmick to get your business. Some of these ARMs entice customers with low interest for a short period of time, and then interest rates go back to higher than they were originally.
4.A refinance will cost you both fees and closing costs, just like your original mortgage did. Take a close look at the amount you will end up paying. It may cost you more to refinance than the decrease in interest rate is worth.
5.When lenders talk up the positive points about any given type of loan, there are usually hidden negatives that they aren’t going to discuss with you. Don’t let yourself get trapped in a situation like this. Spend time researching anything a lender tells you that seems too good to be true.
6.One type of refinancing that has become increasingly popular for older Americans is a reverse mortgage. This is one of the most expensive types of loans you can get, and there are a lot of hidden dangers that aren’t spelled out in the contract you sign. For example, when you make a monthly mortgage payment, taxes, insurance, and other things are taken from it before money is put into paying the principle of your loan. With a reverse mortgage, even though your contract says you’ll receive $x per month, it will actually be this amount minus the payments for taxes, insurance, and anything else you were paying.
7.Some banks advertise programs for refinancing loans for homeowners who are struggling to keep up with mortgage payments, but when you get into the process, you’ll find it’s not that easy. For some reason, huge lenders are unorganized and tell the government they’re doing one thing when they actually doing something else. One of the pitfalls here is that during the many months it will take to get a refinance approved or declined, homeowners pay lower payments just as if the new financing had been approved. Therefore, if it’s finally declined, the homeowner is left owing the balance of all the mortgage payments that were paid at the new rate which can add up to thousands of dollars.