3 Refinance Options You Should Always Avoid

Mortgage refinancing can be the logical choice for many homeowners. Whether it’s to reduce the interest rate, lower monthly payments or for any other reason, it can be a smart move. However, it’s important to be aware of some common refinancing schemes that can get you into trouble. They are almost always bad deals and should be avoided. 1) Refinance for Free When refinancing, you will typically end up paying between 2 to 3 percent of the value of your home in fees. These covers things like the application fee, appraisal, title search and legal fees. This is the norm, so being offered a deal to refinance for free should be a red flag that something isn’t right. One trick that lenders will pull is offering “no cost” refinancing where the costs are transferred into something else like a higher interest rate. Technically speaking, this would be no cost refinancing. But in reality, you end up getting hit with additional expenses later on. The bottom line is that refinancing comes with inherent costs. There’s really no way around it, so it’s best to stay away from lenders with unrealistic promises.  2) No Closing Costs The thought of not having to pay anything to close a deal can seem enticing, and unfortunately, many homeowners fall into this trap. With this tactic, lenders often lure unsuspecting homeowners into a bogus deal because they don’t understand the long-term implications. Like refinancing for free, the closing costs usually get converted into a higher interest rate. Although you pay less upfront, your monthly payments will be higher, and you inevitably end up paying significantly more over time. According to RefiAdvisor, “the only time these loans are a good deal is if the interest rate increase is very slight, say .125 percent. However, there are not very many lenders willing to offer no closing costs loans at this interest rate. In almost every case you are better off paying the closing costs yourself in exchange for a better interest rate.” 3) Lower Interest Rate Promises While you obviously want to find a low interest rate when refinancing, you should be wary of deals that look to good to be true. One trick that’s used by con artists is offering “special programs” or leaseback schemes with below average interest rates. Because there are government programs that help needy homeowners refinance for affordable rates, some scammers will pose as representatives of one of those programs and take advantage of people. With leaseback schemes, a scammer may pretend to be a real estate investor who wants you to sign over the title of your home so a borrower with better credit can get a new loan at a reduced rate and then sell your home back to you. However, it’s unlikely that you’ll get your home back, and it can cause a host of problems. That’s why you always should be cautious when promised a ridiculously low interest rate. To ensure the best deal, you should look around, compare your options and negotiate. It’s also wise to stick with a national lender or national bank to reduce your odds of getting scammed. If you have any questions or concerns about a lender, you should perform some research, read comments and see if they have accreditation with the Better Business Bureau.