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How to Avoid Mortgage Refinance Scams in 2020

As hard as this pandemic has hit a lot of us, there are still people out there waiting for their chance to swindle money from unsuspecting families who just want to get by and be able to afford their mortgage in these uncertain times.
November 24, 2020

Refinance rates have been at an all-time low these past few months due to the current COVID-19 pandemic. That is why a lot of people are taking advantage of this opportunity to refinance into better terms.

This could give you some extra savings to use on more important things in this pandemic, such as buying daily necessities.

But some ill-minded people would also take this chance to swindle money from unsuspecting families who just want to get by and be able to afford their mortgage in these uncertain times.

Spot these scammers by knowing their modus operandi. Let’s discuss the things you should watch for to avoid being on the wrong end of a mortgage refinance contract.

Common Mortgage Refinance Scams

Your best defense to avoid being scammed is to know which common scams are out there. Learning how people are lured into these traps could help you avoid being the next victim. Here are some of the common scams and how they work.

The Bait-and-Switch Scam

This scam is one of the oldest out there. With this scam, you are presented with a really great offer to the point that it’s too good to be true. They usually offer an extremely low refinance rate or a lower monthly payment. Once the victim agrees, they swap the offer and present a very different contract, which leads to a more expensive overall cost. Most of the time, the victim feels that they are too invested already with the offer or that the misunderstanding was their own fault, so they will just sign it to get the whole thing over with.

Loan Flipping

In a loan flipping scam, scammers usually let its victim refinance their mortgage repeatedly, sometimes with a higher loan amount each time. They charge high fees and points during each refinance, so the victim ends up not being able to pay it since the new amount is much more expensive than their prior mortgage. Older adults with memory impairment are their usual targets as they often have significant home equity and, unfortunately, could be easily taken advantage of.

Offers Excessive Loans You Can’t Pay

The lenders will pursue you endlessly to refinance with them and will assure you that it’s your best choice at the moment. They know that your low credit score or current financial status can lead you to a more expensive rate that you might not be able to afford, but they will still push you to move forward with the refinancing just for them to earn a commission.

Ways to Avoid being Scammed

Now we know some of the scams you might encounter once you decide to refinance your mortgage. Let’s go to the important part where we learn how to avoid being the victim of these scams.

Don’t Pay Upfront Fees

Being asked to pay some upfront fees before getting the promised results is a bad sign and sometimes illegal. Note that borrowers are frequently asked to pay these fees over wire transfer, prepaid debit cards, or other untraceable methods. So, if you are asked to pay just to lock in the low rate or for some other reason even before you fully signed the offer or received a relief offer from your current lender, stop and find a better lender without upfront fees instead.

Beware of Suspicious Emails

Some scammers use emails to get their victim’s personal information or money. A legitimate mortgage email is not uncommon, but watch out for emails that ask you to provide personal information. An introduction is one thing, but if you are being asked for information from a company you don’t know, always look them up first.

Avoid Balloon Payments and Prepayment Penalties

A balloon payment is a lump sum due at the end of the loan term, while a prepayment penalty is a fee you will be charged if you pay your entire loan earlier than the end of the contract. Lenders should avoid these types of loans in most cases because they can cost you more than you expected. There are occasions when these concessions make sense, but be sure you understand the terms clearly and, as much as possible, ask for a contract without these elements.

Shop Around

Having lots of options can help you differentiate each offer and make the illegitimate ones more obvious. Trusted lenders can also help you to identify if a particular offer you got is a scam. Many companies like ours will be happy to give you a second opinion, considering your circumstances to determine if an offer is trustworthy. One big red flag is if a lender recommends you not to consult your lawyer, credit housing counselor, or current lender.

Find Legitimate Help

Connecting with a trusted, well-reviewed lender significantly lowers the chances of you being scammed, even if you’re comparing multiple options. If you decide to refinance your mortgage due to foreclosure notice or another event, ask for options first from your current lender. You may also contact a credit counselor through the Homeownership Preservation Foundation (HPF). They offer free, bilingual, personalized assistance to help at-risk homeowners avoid foreclosure. You may contact them 24/7 by dialing the toll-free hotline (1.888.995.HOPE)

Conclusion

In reality, scammers will always be lurking in the dark, ready to pounce on any victim they can grab. However, being conscious and having a healthy suspicion of any mortgage refinance offers you receive is the best way to identify these scams and avoid them altogether.

Read every offer that you are given thoroughly and double-check every detail before agreeing to sign any contract. At the end of the day, putting more effort and exploring all your available options is the only absolute way to find the most suitable plan for you.

MLO License Info: NMLS# 1621958 NH Broker license #: 22032-MBR and MA Broker license #: MB1621958 ME Broker License # 1621958 Copyright Nextgen Mortgage. All Rights Are Reserved

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