Getting a Mortgage – Be Aware of Deceptive Practices
Here are some mortgage Insights and pitfalls to avoid. Be aware of deceptive practices when getting a mortgage.
Have you ever heard a pitch from a mortgage salesman that went something like this: “If I could lower your monthly payment by $300 dollars, would you refinance your mortgage with me?” This may not sound like a bad deal, and it isn’t necessarily, but there is รับจำนอง a quite a bit more to consider than just this.
Learn as much about of the company you are dealing with as possible. Some brokers and banks pretend that they are able to get “deals” for you that are indicative of how much better their company is than others. The reality is, except for very infrequent circumstances, all banks/brokers are dealing with a similar cost of mortgage money. So any deal they are able to offer should be similar to other qualified operations. They are not able to get you a cheaper loan based on their cost of capital. The only way they can compete financially is on the amount of fees they charge.
Of course, they can compete on service, competence, advisory capability, etc., and that is indeed worth something. But that needs to be evaluated separately from any discussion of saving X dollars a month, or how good the deal the current pitchman has. A knowledgeable salesman/banker can help identify your needs and guide you into the right product at the right time. This is much different than one who is touting huge savings, regardless of your situation.
So, back to saving $300 a month claim – First, all other factors must be equal for it to have validity. The loan must be for the same remaining term that you have remaining on your current loan. If you are paying $1,500 a month, with ten years left on your current mortgage, then the comparison must be with a ten year loan. If it’s made with a typical fifteen year loan time-frame, of course the payment will be significantly lower, since it is spread out among many more payments. If you look at the total costs of the new loan, you may see they may now be higher. So that needs to be checked. Most people would probably catch this. Often, however, multiple changes are made in the loan at the same time so the benefit is nowhere near as great as it first appeared.
For instance, they may be lowering your monthly payment, largely through a switch to an adjustable rate mortgage, and secondly by increasing the term of the loan. Perhaps general interest rates have come down. This will be packaged as if you are saving big money on a monthly basis primarily because interest rates have come down. The adjustable feature itself drives the interest rate down. You are probably getting a quarter to half percentage point lower rate with the adjustable rate. But the reality is you are taking more risk with the adjustable terms to get the lower interest rate. Also, you are achieving lower monthly payments by spreading out your current loan further into the future. Is this what you really wanted to do?
Don’t forget that an adjustable rate mortgage is only appropriate for those who expect to be in their home for less than five years, and ideally for less than the adjustable rate period. It’s true you may benefit in the short run by switching to an adjustable rate loan. However, you are betting that interest rates will stay reasonably low by the end of the adjustable timeframe. This risk can be glossed over by those eager to get you to enter into a new mortgage transaction. It’s important to appreciate the true risks. There is a significant chance that interest rates will be much higher in five tears than they are now. Only those in excellent financial condition, able to withstand a large interest rate and payment increases, should take risks of this type.
Another trick is to quote a monthly payment without the equivalent tax and insurance payments built into the quoted payments of the loan. In other words, you are quoted a loan without tax and insurance included in the payment, for comparison with your current “stub” payment, which does include those charges. Perhaps those charges have been purposely underestimated by the new mortgage company in their calculations. It is not until closing that the true charges are “uncovered”. You may then realize that the benefits of the new loan have been overstated. This is why it is so important to have a bank/broker that you can trust, as they will steer clear of these questionable tactics.
New financial rules, such as Restoring American Financial Stability Act of 2010 (RAFS) as well as new RESPA rules, are being put in place to help you combat deceptive practices by mortgage professionals. Make sure you are just as aware of the rules and the protections they afford as the mortgage products that are being sold to you.