Q: My husband and I purchased our home two years ago. We have received numerous solicitiations promising to lower our interest rates, get extra money out of our home’s equity and lower our monthly payments. Does it makes sense to refinance in the current market?
A: Whether or not it makes sense to refinance depends on the interest rate now. Bankrate.com has a nice tool on their Web site that lets you calculate whether or not it’s in your best interest to refinance. Right now, 30-year fixed rate loans are hovering around six percent. That means if your loan is higher than six and a half percent, you may want to shop around.
That said, according to the FTC many of the solicitations are deceptive.
Some are made to look like they are from your own mortgage company that has decided to lower your rate, when they are really from other lenders wanting you to refinance with them. Many don’t disclose the true terms of the deal as the law requires, so you should always follow up with questions. Be wary of mail that touts a low “fixed” rate but doesn’t mention how long it will be fixed (it can be an introductory period as short as 30 days).
Also, an exceptionally low rate should be a red flag and is often a payment rate, not the interest rate, and only applies during the loan’s initial period. Some offers also fail to disclose the terms of repayment, and things like whether the payment will increase and what a final balloon payment might be. And, finally be very aware of two types of language: The exclamatory type. Solicitations that say things (particularly with exclamation points) like: Mortgage rates near 30-year lows! Rates as low as 1%! You are paying too much! Who doesn’t want to reduce their mortgage payments? Loan amount $300,000 - pay only $900 per month!
Also, watch out for mail with language like: Important Notice From Your Mortgage Company. Open Immediately - Important Financial Information Enclosed. Please do not discard - account information enclosed. Appearances can be deceiving. Mailers that have information about your mortgage and your lender may not be from your lender at all, but rather from another company that wants your business. Companies can legally get your information from public records. Before you respond to any offer, review it carefully to make sure you know who you’re dealing with.
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