Mortgages provide homeowners with a flexible loan that can be refinanced or swapped to take advantage of lower rates. Mortgages can be offered in fixed or variable rates over extended periods of time. When medical bills or educational expenses arise, a mortgage can also be used to take out a home equity loan, where the value of the house is used as collateral. Due to the pliable nature of a mortgage, individuals are constantly in the market for new lenders and more affordable rates. Unfortunately, this market also attracts fraudulent businesses who prey on homeowners with bad credit in dire need of refinancing.
The common mistake homeowners make when they refinance mortgage loans is assuming the new rate is locked in. Often times lenders provide extremely discounted rates that can be revalued later on. Homeowners should demand that any refinance contract provides prior notification before new rates are locked in.
In addition to misleading interest rates, scam artists often use mortgage refinancing as a tool to ensnare desperate lenders. Those with bad credit are particularly vulnerable, as they have few other options for financial assistance. The scam artist offers to take over the loan with a lower interest and monthly payment in exchange for an upfront processing fee. Homeowners sign up for such offers only to find no payment was made to the lender months after being deceived.
Home Equity Loan
While the burden of a second mortgage may be difficult, medical, educational, or emergency situations may arise where such hardship is necessary. In order to alleviate this burden, some companies will offer money under the guise of a low interest, home equity loan, when in fact the money is handed over in exchange for a percentage ownership of the house. Make sure you verify that any documents you sign clearly state the house is offered as collateral only. While there are some reputable organizations that do offer cash for a small percentage of future appreciation, these companies do not charge interest and have no control over when you sell.