For nearly anyone who owns a home, it’s practically impossible to avoid a flood of junk mail related to refinancing the property. As mortgage lenders and similar businesses, desperate for a bigger piece of the reconstituted home loan pie, try to dream up the best ways to generate leads, a lot of their efforts end up as wasted trees delivered to your mailbox.
Part of the overall strategy of many companies offering mortgage refinancing is to reach out to a wider class of homeowners, whether these individuals need their services or not. Almost from the day that you sign your settlement, you can expect a host of marketers sending you letters about “new low rates” and “dropping your monthly payment.”
Are Mail Offers for Mortgage Refinance a Scam?
Most of those who are experienced in refinancing a mortgage suggest you wait a while after buying your home, and restrict your refinancing deals to drops that make sense balanced against the kinds of fees that you can expect from refinancing lenders.
The majority of mailers you get don’t take these factors into account, which has led many consumer advocates to view most of them as scams. Too often, the writers of direct mail pieces are simply trying to get up-front fees, and some of them may never even provide refinancing services at all.
That doesn’t mean that there aren’t legitimate refinancing offers out there, just that it’s critical to do a fine read of any offers you receive. High pressure to refinance sooner than a year after purchase, or at a rate difference of less than 1%, is usually a sign of predatory lending.
How to Tell Which Refi Offers are Legit
The best litmus test for whether or not a direct mail offer is a scam is an analysis of what you're really going to get out of it–the most fundamental way to judge an offer for a refi is by calculating how much you will save versus how much you will pay.
Experts recommend looking critically at junk fees that often come in the form of unnecessary loan origination fees. These extra costs pad the lender's pockets, while some mortgage brokers even get commissioned according to how much extra they can get homeowners to pay.
That’s why finance pros advise you only use a mortgage brokers you can trust, and never agree to an interest rate or any other aspect of a deal unless it’s in writing. Even a good faith estimate mandated by HUD is not always an accurate indicator, so it’s important to look at the hard numbers when you are considering signing on the dotted line for refinancing.
Mortgage Scam Red Flags
The fact is that many direct mail pieces are just pathways to possibly predatory mortgage lending schemes that you don’t want or need, and that could harm you in the long run if you don’t fully understand what the letters are selling.
Some refinancing companies tend to make up compelling narratives about “local specialists” who can help homeowners save money. Others rely on offers of “free government money” or other elaborate yarns related to those hypothetical savings from refinancing. All of these are red flags that should prompt homeowners to take a closer look at what they are reading when they go through their afternoon mail.
In most cases, you can ask a specific mortgage refinancing company to stop sending you these unwanted missives. The problem is that there are so many of these so-called refi specialists competing for your business, and over time, most of your individual pieces of junk mail will come from different sources. When you do get return letters or communications over the phone, it makes sense to call up the company or send a cease and desist letter.
What if I Want to Refinance?
The big takeaway from all this is take it slow. Chances are the kinds of offers you get in the mail one day will still be there the next, even though frenzy-provoking reps might tell you interest rates are about to skyrocket, or that their lenders are having some kind of weekend fire sale.
Financial counselors even have a term for those who are too quick to jump into refi agreements: Refinancing junkies. They sign multiple deals, often in a mad hunt for the lowest possible interest rate, not understanding that they may not be saving much, or at all. You may be able to get a legitimate refinancing deal from one of the companies that are known to contact you out of the blue, but unless you were already actively looking for better interest rates on your house, you’re usually better off using these form letters as scrap paper.
This is an article from the folks at GoBankingRates.com