, Dreamy Mortgage Interest Rates May Conceal Nightmares

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Offered a super low interest rate? If it's too good to be true, it is.

We all have gotten them, we all read them, and then most of us delete or ignore them. Low interest rate offers that seem too good to be true are careening about the Internet at break neck speed and some folks are becoming the victims of hit and run.

Since the advent of the Internet many wonderful things are now available to consumers, which were not available just a few short years ago. The Home Mortgage and Lending Industry has fully embraced the Internet and is booming as a result. More times than not consumers benefit form this new alliance, but at times they are blinded by the offers, succumb to their own naiveté and get taken to the proverbial cleaners.

E-mails that purport to offer home owners rates as low as 1.5 percent, or claim that they have already been pre-approved for a re-financing up to $400,000 or more, are designed to hit consumers where they are most susceptible, their wallet. Like magicians who use smoke and mirrors, these unscrupulous mortgage brokers are hoping that the show will be so amazing, that the fine print will not be seen or understood. Many times this tactic works and people find that what they had hoped to save has all but been lost, along with the home they have worked so hard to acquire.

The fact that current news headlines are reporting daily declines in legitimate interest rates further helps to reinforce in the minds of consumers, that these offers are legitimate and warrant consideration. What the fine print conceals, the slight of hand, is that the low rate is actually adjustable and it can increase in as little as 30 days time. You may be paying less every month, but your interest is not being paid up and your loan balance continues to accumulate at an alarming rate.

Homeowners who think that they may be saving $200 to $300 a month on their payments are actually falling behind by that very same amount. The reason being, no matter what that new rate quoted may have been, they are still paying the original 5, 6 or 7 percent that is associated with the original loan agreement. Further, lenders work on a margin basis and that margin is tacked onto the LIBOR index rate. The new loan has no annual cap and it can continue to rise to the point where the borrower is now looking at a principal balance well over 100 percent of the original. Also within the fine print of the new agreement, is the lender's right to increase, at any time, the monthly payment due. This means that not only has the balance increased, so have the monthly payments. To add insult to injury, these stipulations can remain in effect for up to two or three years in some cases, and the closing costs associated with these loans are in the thousands rather than hundreds of dollars.

These types of offers should not catch out borrowers. Anytime they receive this type of pitch they need to ask how and why they are being approached. Reputable lenders do not employ such tactics. They will not "spam" or go door-to-door hanging flyers on people's doors. They will not offer anything that seems too good to be true. Sales people and brokers who wish to get into a direct one-on-one with prospective borrowers are going to be relying on their expertise as salespeople, and not on a straight-forward deal to get people to sign new loan agreements. They know that a lot of folks just cannot say no to a "kind and helpful" offer.

Only a limited number of states have laws and regulations in effect to protect borrowers. It is advised that anyone who thinks they are about to get the deal of the century seek professional, third party, financial counseling. They should take the proposed agreement and a list of questions with them, and thoroughly examine the offer in an un-pressurized setting. They need to clarify exactly what the terms are, how they may adjust over time and what index and rate they are pegged to. Is negative amortization possible? Will they suffer a pre-payment penalty if they try to get out of the agreement early? And most importantly, what is the actual rate of interest going to be?

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David Levine



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