Refinancing your mortgage can be a scary thing. There are many mistakes homeowners make when it comes to taking out a mortgage; many of these mistakes could be avoided by paying attention to detail when reading the fine print on the mortgage contract. Here is what you need to know to avoid costly mortgage mistakes when refinancing your mortgage.
When you sign the loan contract for your mortgage you are agreeing to all of the terms and fees included in that contract. The problem for many homeowners is that they do not take the time to read this contract. Too often they focus solely on the interest rate and do not pay attention to other fees and penalties included in their contract. As a homeowner looking to refinance your mortgage you could save yourself a lot of heartache and money by taking the time to carefully read your loan contract. Here are things to look for when reviewing your loan contract.
Prepayment Penalties
As a rule of thumb when it comes to a prepayment penalty in your mortgage contract, just say no. The mortgage industry is fiercely competitive so there is no reason to settle for a mortgage that includes this penalty. A prepayment penalty is simply a clause in the contract that states if you refinance or sell your home within a certain period of time you will be required to pay the penalty. These penalties can be quite steep; some lenders charge as much as six months interest on 85% of the original loan balance. The bottom line on prepayment penalties is simply do not accept a loan offer that includes one. If the lender refuses to remove it from the contract, find a new lender.
Balloon Payments
Make sure the mortgage contract does not include a balloon payment. Dirty mortgage lenders use balloon payments to force homeowners to refinance their loans when they do not need to. The lender benefits by collecting fees for refinancing. A balloon payment is simply a large amount of loan principal or interest due at a specified time. If the homeowner is unable to pay the balloon payment there is no other alternative to refinancing or even selling the home.
Agree to Arbitration
Never sign a loan contract that forces you to agree to arbitration when settling disputes. Arbitration means you agree to have any disputes settled by a third party instead of the legal system. By agreeing to arbitration you forfeit many of your legal rights; arbitration always favors the mortgage lender.
Loan Acceleration
Accelerated payment clauses give the lender the ability to speed up repayment or call in the entire balance of the loan. There is no reason to agree to accelerated payments and honest mortgage lenders do not include these clauses in their loan contracts.
When reviewing your loan contract make sure everything you agreed to with the lender is clearly represented in the contract. This seems like common sense; however, many homeowners assume everything is in the contract, only to find the terms have changed after they signed. To learn more about avoiding common mortgage mistakes that can cause you to overpay thousands for your mortgage, register for a free mortgage guidebook.
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Louie Latour specializes in showing homeowners how to avoid common mortgage mistakes and predatory lenders. For a free copy of "Mortgage Refinancing - What You Need to Know," which teaches strategies to find the best mortgage and save thousands of dollars in the process, visit Refiadvisor.com.
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