Two Common Scams Associated with Mortgage Refinancing

Mortgage refinancing allows you to secure a new mortgage loan with new terms and a new interest rate. It’s a good option if you have decent credit and the current market rates are lower than your original mortgage rate. When considering a refinance, it’s crucial to familiarize yourself potential refinancing scams in order to successfully avoid them.

Higher Interest Rates

Some refinance companies will attempt to convince you to refinance your home under a higher interest rate for a longer period of time. The company sweetens the deal by providing you with a portion of your home’s equity under a cash-out refinance. Although this may lower your monthly payment and give you cash in your pocket, you end up paying thousands more over the life of the loan. In addition, you lose home equity.

Balloon Payments

Another common refinancing scam used by unethical mortgage lenders is to charge a balloon payment on the loan. The lender won’t mention the balloon payment to you and since its buried within the legal paperwork, unless you scrutinize your new contract you may miss it entirely. With balloon payment loans, you pay regular monthly payments for several years and then must pay off the entire loan balance in one lump-sum payment.