Loan Refinance Guru

Being Smart with your Refinance.

Refinancing your mortgage may be a good choice to save you money in the long run, or it may be a bad decision that costs you money. It is difficult for many people to fully understand how to calculate if refinancing will save them money or cost them money, and most lenders are not very helpful to borrowers trying to make a refinancing decision.

When a loan officer or broker originates a new loan or refinances a loan they get a commission from each transaction. When the loan closes, they get paid. This makes it very difficult for the average homeowner to get help on refinancing decisions because many brokers and loan officers do not help borrowers calculate their potential savings or potential loss if they refinance. They also do not warn borrowers of a loan that may look attractive now but cost them a lot of money in the future. In all fairness there are brokers and loan officers that truly care about the borrowers and tell them which loans are better and inform them if refinancing is a bad option for them, but for the most part people in these professions are out to make money and expect you to figure out for yourself if it is a bad financial decision to refinance or if the loan is undesirable.

Even though refinancing may cost a home owner money or even put their home in jeopardy, many people refinance anyway. Some of the main reasons people make bad refinancing decisions include:

  • The borrower is shortsighted and only sees the cash. Many borrowers are only concerned with the money they can have and use right now when they should be thinking about the future. By refinancing their mortgage to take cash from the equity in their home these buyers may accept unfavorable loan terms that cost them money in the future. Many brokers and loan officers trap home owners into bad loans that could cause them to lose their home just by showing them the opportunity for money in their pockets to use anyway they want right now.
  • Mortgages that may look attractive at first sight but hurt the borrower in the future. Interest only loans are a good example of a loan that looks good at first but may cause a home owner to go into default and lose their home in the long run. An adjustable rate interest only mortgage allows the borrower to pay only interest at a fixed rate for the first two or three years which usually offers a really low monthly payment to the home owner. Then after the fixed period the mortgage payment goes up to include principle and a higher interest rate and the home owner may be stuck with double the monthly payment from before and lose their home because they can’t afford it.
  • Predatory lending practices. Many lenders know that the loan they are offering is shady and will cost you more money in the future, but they tell you it is the best you can do in order for them to get a higher commission. They may also know that refinancing is a bad idea for you, but help convince you by telling you they will lower your monthly payment in order to get you to close a loan so they can make more money.
     

If you feel that you have been coerced into a bad mortgage deal catch it before it is too late. The Truth in Lending Act allows a borrower 3 days to change their mind after closing a loan, and as long as you inform the lender in writing within those 3 days that you changed your mind and don’t want the new loan they are required to refund all of the fees and cancel the transaction. Before you make any final decisions about refinancing take the new loan you are considering to a financial advisor. The fee you will pay for an advisor to look over your loan paperwork to see if it will cost you or save you money will far outweigh the potential loss you may have if you get into a bad loan situation.

Is a Refinance financially beneficial to you?

Copyright  2006 - Loan Refinance Guru