Refinancing scams are big news lately, and for good reason. If you are considering refinancing your home, I urge you to read this article in its entirety. It might save you tens of thousands of dollars in the long run.
I used to work for a major, US direct lender who specialized in home-loan refinancing. This corporation taught its loan representatives how to manipulate customers into agreeing to loans that were not in the borrower’s best interest. Although we were taught many methods of psychologically coercing customers into signing loan documents, this article will only discuss one of those methods.
Before I discuss this tactic, you should realize that when a lender evaluates your loan application, they are primarily looking at three things:
1) FICO Score
2) Mortgage-related late payments
3) Bankruptcies
Credit-card payment history, car-payment history, student loans, collections, charge-offs, and pretty much any type of credit problem that is not directly related to a mortgage is irrelevant to getting your loan approved. Why are these credit issues irrelevant? Because that is what the FICO score represents. Your FICO score is a numerical value that takes into consideration all of these factors and lumps them into a number that will range from 500 to 800+.
Mortgage-related late payments will typically increase your interest rate. Bankruptcies will also increase your interest rate or (depending upon the lender) make you “un-lendable”.
Here is the tactic that you should be aware of:
Your loan officer may want to talk with you about your credit history. He or she will ask you specific questions regarding credit-card late payments or otherwise non-mortgage related issues on your credit report. Your loan officer will ask that you explain yourself and provide a valid reason why you were late on those payments.
How is this manipulative?
For starters, those credit issues are irrelevant to your loan approval. Your loan officer should not be discussing them. By asking about your credit history and requesting an explanation, your loan officer is accomplishing three things:
1) Making you feel insecure about your credit history so that you will be less likely to request a quote from another lender
2) Forcing you to “open up” about your personal life, which will help develop a stronger relationship between the two of you
3) Make you feel more appreciative of the loan that your loan officer offers you
The more battered your credit history, the more ammunition a ruthless loan officer will have to use against you and try to manipulate you into accepting a loan that is not in your best interest.
Remember, the majority of loan officers know exactly what type of loan you are approved for the moment they pull your credit. There is absolutely no need for them to delve into your past.
If you experience this type of tactic from your loan officer, I strongly suggest you find a more reputable company to work with.
By: Christian Rios
Posts Tagged ‘Student Loans’
Refinance Scams – Shady Loan Officer Tactics – Part 1
November 25th, 2009How to Refinance Student Loans – 5 Tips
November 24th, 2009
Once you have been in college for one or two years, you may start getting offers to refinance student loans. The offers will all sound tempting, but you should definitely get your facts straight before going through with anything. There are many things you will need to discover and compare.
Refinancing is generally a good idea at any stage of your education. You can save a lot of money on interest and finance charges by consolidating into one loan. However, you want to be careful that you do not actually make things more difficult for yourself in the long run.
1. You need to keep track of the interest rates being offered. Know what the interest rates on your current loans are, and what interest rates may be offered in the future. You should also be aware of the current average interest rate so you can be sure the rate you are being offered is fair. Additionally, find out if the interest rate being offered in the refinance is a fixed or adjustable rate.
2. Find out what the payment terms will be. If you are still enrolled in college, you should be able to continue holding off payments on the principal until you have graduated. This is called an economic deferment. Interest will likely accrue during the deferment, and you should be able to pay that monthly without penalty.
3. Ask the company or lending institution when payments will be expected to start. In most cases, you should be given at least six months from the date of your graduation before you have to start paying on your student loans. However, when you refinance student loans the rules can change. Good companies will still give you the six months grace period.
4. It can be beneficial to you to refinance your loans every year or two, keeping them consolidated and with one company. Additionally, you will definitely want to refinance when your education is complete to make the loans more manageable. Make sure that the terms of the refinance do not exclude this option.
5. Try to choose a company that can work with you over time to continue refinancing until your education is complete. When that time comes, you may need to make additional arrangements as you seek out employment in your new career. The company should also be willing to accept early payment of the loans without penalty, in case you find yourself able to pay ahead, or even pay off the loan early.
By: Joe Eitel