Do you need a home mortgage? How badly are you in need of a home mortgage? Some mortgage lenders hope you’ll need a mortgage very badly indeed, and when you’re backed into a bad spot, they’re exactly the kind of mortgage lender you don’t need. Here are the top five signs to watch out for when you’re considering mortgage lenders:
* Aggressive marketing. Borrowers seek out good home mortgage lenders; legitimate and reputable lenders do not need to hunt down borrowers. Predatory mortgages, on the other hand, are what one expert called “loans seeking consumers.” Predatory lenders use hard sell tactics, junk mail campaigns, and telemarketing, and even more suspiciously, they market door to door. Avoid any lender who uses these marketing tactics.
* High interest rates. Interest rates on bad mortgages are usually markedly higher than the market average. Some lenders target borrowers with poor credit ratings, since such borrowers have difficulty getting a home mortgage from a legitimate lender and are more likely to accept a high interest rate. Other lenders prefer to target inexperienced borrowers who are unaware that they are paying too much for their mortgage. Bad lenders often tell borrowers to handle the high interest rate by frequent “flipping,” or refinancing, of the home mortgage.
* Bloated fees. Legitimate mortgage fees might look staggering on paper, but they don’t come to more than 1% of the amount of the mortgage. Predatory mortgages usually saddle borrowers with fees of 5% or more.
* A kickbacks known as a yield spread premium. This is a well disguised piece of financial jargon for a kickback to the broker for convincing you to accept a much higher interest rate than you are entitled to. A legitimate loan will never have a yield spread premium on any account. If you are offered a home mortgage with a yield spread premium, look elsewhere. Not only have you been offered a bad mortgage, but you have been told indirectly that you are qualified to get a much better interest rate.
* Prepayment penalties. This is a fee you will pay if you want to pay off or refinance the loan early. Good mortgages rarely have any prepayment penalty, and when they do have a penalty, the term during which the penalty applies is short. However, bad mortgage lenders frequently dissuade you from refinancing with another lender by tacking on prepayment penalties that apply for three years or more after you sign for the mortgage.
If any of these signs apply to a mortgage you are offered, reject the offer and find another lender. No matter how badly you need a home mortgage, you don’t need one as bad as the ones these lenders will sell you.