With mortgage refinance rates continuing to hover near historic lows, now could be a good time to angle for a better deal on your home loan. As of February 26, mortgage refinancing accounted for 67.5% of total weekly home loan applications, according to the Mortgage Bankers Association.
But there’s one thing to watch out for — mortgage refinance scams.
Scams involving fraudulent mortgage refinance loans have become particularly problematic as a result of COVID-19. With people struggling to make mortgage payments, homeowners may be an easy target for fraudsters. Knowing how to avoid scams can help you protect your financial and personal information.
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5 ways to spot mortgage refinancing scams
Some refinance loan scams are subtle while others are more obvious. Knowing the most common red flags to be aware of can help as you compare mortgage refinance options. Here are some simple ways to root out a refinancing scam:
- Determine if a mortgage lender is legitimate
- Be wary of excessive fees
- Resist high-pressure tactics
- Get it in writing
- Trust your instincts
1. Determine if a mortgage lender is legitimate
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4. Get it in writing
Regardless of how low mortgage refinance rates go, don’t sign off on a loan without reading through the documents carefully. Ask to see a “Truth-In-Lending disclosure” if one hasn’t been provided to you yet and comb through it to look for unexplained or hidden charges. Keep in mind, however, that you could still be targeted by a bait and switch scam, in which a refinance lender replaces or alters loan documents after you’ve signed them.
5. Trust your instincts
Here’s a simple rule of thumb for avoiding mortgage refinance scams: If something seems too good to be true, it probably is. A lender that promises you low mortgage refinance rates that you wouldn’t ordinarily qualify for based on your credit score, for example, may be selling you a bill of goods in order to defraud you. Likewise, a lender that asks for your social security number, bank account number or other sensitive personal information right away may be targeting you for a scam.
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Is it wise to refinance your mortgage now?
If you want to save on mortgage costs, low rates make that an inviting prospect. When weighing whether you should try and take advantage of near-record low refinance rates, there are some things to consider first.
For example, how likely are you to qualify for a refinance loan and get the most favorable mortgage rates? The coronavirus pandemic has led many lenders to impose tighter restrictions on mortgage borrowers. That includes looking more closely at a homeowner’s credit score, credit history, credit utilization rate and debt-to-income ratio.
Also, consider whether refinancing a mortgage makes sense from a financial perspective. Even with record low refinance rates, your savings from refinancing could be minimal if you don’t plan to stay in the home long term or you’ve already paid down a sizable part of the principal on your original home loan.
