The Mortgage Council

Home Loan

How are we supposed to handle ourselves in a marketplace where even a bad credit home loan is an affordable, meaningful opportunity? Why, with caution of course!

Refinancing your home loan too often?

Periodic mortgage refinancing is actually a scam and can deplete your home equity. A mortgage broker who conns you into refinancing your home loan is the only one who is truly profiting. How? Well, a broker that refinances a home loan every 3 to 6 months is essentially conning the lenders he represents by making it seem like he's doing a cost-reduction refinance when actually what he's doing is a cash-out refinance. Cash-out home loan refinances have higher default rates than cost-reduction refinances. Borrowers reduce their equity with a cash-out refinancing. Some brokers will pad the settlement costs with a kickback. A broker will report, for example, by reporting $10,000 in settlement costs when they are actually $5,000. The extra $5,000 is pocketed by the broker.

This kind of broker deals with many lenders so that he can move the loan around without appearing to be suspicious. Some borrowers may pay off home loans within 6 months, so it appears somewhat legitimate to the lenders who don't know the whole story. The lender, however, is being conned because he's writing mortgages that won't even last long enough to cover the costs of it. The last lender that the broker and borrower utilize will have a cash-out refinance that is disguised as a cost-reduction refinance.

Why the borrower gets hurt in the end

If this scam were to happen to a mega-corporate lender such as Countrywide home loan, they'd never notice. Basically the borrower is getting conned by the mortgage broker into paying an extraordinary price for a small loan by repetitively refinancing a home loan. Each time a borrower refinances, he increases the debt on his house by the exact amount of the money that he receives and in addition to the real settlement costs and the broker's fee. Ultimately, if the borrower simply gets a home equity loan he will save much more money and not completely deplete the equity that he's built up. Home equity loans are better if you're simply trying to get some cash liquidity, and a home improvement loan is always there to help the busy home owner work toward . The broker is the only one who is (unethically) making any money by refinancing a home loan. Both the lender and the borrower are losing money or equity by repetitively refinancing a home loan and should always be weary of a scheme that seems too good to be true.

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