Foreclosure Rescue Scams ExposedThe Dirty Dozen #2 of the 12 Most Common Foreclosure ScamsScam #2) Refinance Now This scam is self-explanatory. The foreclosure rescue scam con artist may even be a real loan officer who offers to refinance your mortgage at a low fixed rate, pay off your old loan, and give you a new lower house payment. The main targets for this scam are people who have questionable credit or who have little credit. These loans are real too, but the terms are horrible. Beware of words like - "pick a payment" - "negative amortization" - "interest only" - "option loan", or "payment rate" (sounds like "interest rate", but is not the same thing.) These foreclosure scammers offer loans that have amazingly low "payment" rates, like 2.5%. In this case, it really is too good to be true. With a fixed 2.5% rate, what is probably "fixed" is the margin. The margin is the amount above the index (base rate). If the bank uses prime rate as their index (say 5.5%), then your actual interest rate is 5.5 (index) + 2.5 (margin), or 8% - not a great rate. Yes, you will pay a payment based on the 2.5%, but it is only a partial payment. The part that you don't pay (interest) is added onto your loan balance, which means your loan balance increases every month. The closing costs and origination fees to create the loan are inflated as well. And, to make matters worse You will make these 2.5% partial payments only for the first year or so, then you have to start making payments based on the full 8%. Your payment can more than double!!! In the meantime, your loan balance has skyrocketed due to all the "deferred" interest being added to your loan balance each month. By the time that first year or two is over, your loan balance is so high that you owe more than your home is worth. The final blow is While your loan balance has gone up more and more each month, the credit bureaus are tracking that activity. Those monthly increases on your loan balance are seen by the credit bureaus as "new debt". Acquiring new debt month after month is terrible for your credit. You think you are building good credit by making regular mortgage payments, but your credit score is actually going down every month. When the payment adjusts, you cannot afford the home anymore. You are stuck for two reasons: 1. You cannot sell your house because you owe more than it is worth. 2. You cannot refinance at a lower rate because your credit is ruined - you cannot qualify for a decent loan. The result? Foreclosure. Red Flags to look for: Extremely low interest rates. Exotic terms like: "pick a payment" "option loans" "interest only" Exorbitant promises like: "Bad credit? No problem!" - "We Finance Anyone!" - "Low Payments Guaranteed" Things to keep in mind: If it sounds too good to be true, it usually is. If it sounds too good to be true, it usually is. If it sounds too good to be true, it usually is. Have I made my point?
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