You should avoid any company that guarantees that it can modify your mortgage or prevent your home from being foreclosed, especially if the company asks you to pay an up-front fee or even worse, asks you to sign your house over to them. Following the collapse of the real estate market numerous scam companies emerged to taking advantage of people who were behind or underwater on their mortgages and about to lose the homes.
For a fee, these companies promised to work with distressed borrowers’ lenders to help the borrowers save their homes. In most cases, the companies offer borrowers empty promises and simply take the borrower’s money and provide nothing in return. Additionally, many of the companies claim to offer special government programs to help borrowers when in reality they have no affiliation with the government whatsoever.
If you have fallen behind on your mortgage and are facing foreclosure the best thing to do is contact your lender directly and understand what steps you can take to address your situation. Be sure to ask about your lender about what government-backed mortgage programs for distressed borrowers.
If your lender is not helpful, you can contact your local housing authority or community housing organization. These government or nonprofit organizations typically provide anti-foreclosure programs or offer other local programs for distressed borrowers for free. If you are facing foreclosure you may seem like you have no options but working with scam companies that make promises but only take your money is not the solution.
Applying mortgage acceleration and bi-weekly mortgage strategies are useful ways to reduce the length of your mortgage and save you tens of thousands of dollars in interest expense. With mortgage acceleration you pay more than your required monthly mortgage payment. With a bi-weekly mortgage you make a mortgage payment every two weeks instead of once a month.
There a several services that promise to implement these strategies on your behalf to save you money but these services are usually scams. These services typically charge a set-up fee and monthly service fee to make your mortgage payments for you, including the overpayment or bi-weekly payment. Simply put, you do not need to work with a third party service to implement the mortgage acceleration or bi-weekly mortgage strategies.
Review our Mortgage Acceleration Guide and why you should never pay a third party to accelerate your loan
With mortgage acceleration, simply send your bank a check including the amount of any overpayment and note that any excess amount paid goes to pay down your principal mortgage balance. With bi-weekly payments, confirm with your mortgage servicer (the company that collects your mortgage payment) that you will be making bi-weekly payments and that any amount above the required monthly payment should be applied to the mortgage balance.
In short, the mortgage acceleration and bi-weekly mortgage strategies are great money-saving tools that borrowers can implement on their own without paying for a third party service.
Understand How a Bi-Weekly Mortgage Works
In many cases, a lender advertises a low interest rate to generate borrower interest but when the borrower contacts the lender, the advertised rate is no longer available or only available for a specific mortgage program or length. In some cases the low advertised rate, also called a teaser rate, has expired or the rate only applies to a specific type of loan program, such as adjustable rate mortgage, or a specific loan term, such as a 15 year loan. The advertised interest rate does not apply to a 30 year fixed rate mortgage, which is the most common type of loan.
Once the lender has the borrower in the office or on the phone, he or she explains that the interest rate does not apply to the borrower but attempts to convince the borrower to apply for the mortgage anyway. This is also known as a bait and switch -- when a lender promises loan terms they cannot deliver to entice borrowers.
When you are in the market for a mortgage, be aware of low teaser interest rates and make sure the lender can deliver the terms, including mortgage rate and closing costs, they have promised you.
A lender may advertise an interest rate and monthly mortgage payment for a mortgage program that is not suitable for the borrower. For example, an interest only mortgage, which requires the borrower to pay only interest and no principal during the first three, five, seven or ten years of the loan, typically offers the borrower the lowest monthly payment during this initial interest only period. Additionally, the borrower can typically afford a larger mortgage amount with an interest only loan as compared to a fixed rate mortgage or an adjustable rate mortgage (ARM), which require the borrower to pay both interest and principal.
With an interest only mortgage, however, after the initial period your monthly payment typically increases because you start paying both principal and interest plus your interest rate can increase in the future, which could cause your payment to go up even more. A borrower could be lured by a low payment during the interest only period of the loan but be unable to make the payment when it increases in the future.
When you are talking to lenders make sure you understand the pros and cons of the mortgage program they are offering and do not simply select the program with the lowest interest rate and monthly payment. Although you may be able to afford your mortgage today, you may not be able to afford it in the future if the rate and payments are subject to change.
A lot of lenders promise to process and close your mortgage in a specified time frame -- typically 21 or 30 days. The guaranteed time frame lures borrowers because the less time it takes to process your mortgage, the easier the process and the less likely it is for interest rates to increase from when you apply for the loan until closing.
In many cases a lender promises a borrower that a mortgage will close in a certain period of time and then blames circumstances or parties outside his or her control, such as the appraiser, title company or underwriting review process, when the schedule extends beyond the guaranteed time frame. Even worse, the lender may claim that your mortgage rate has increased because the loan did not close within the specified time frame.
Review our Mortgage Process Timeline
As a borrower, you should always expect the unexpected when it comes to the mortgage process as there are always issues that arise that delay the scheduled timetable. If you are working with a lender that promises a specific closing date, ask the lender what happens if the mortgage does not close within the guaranteed time frame.
Additionally, borrowers should request that all interest rate lock extensions (extending the interest rate promised to you at the beginning of the mortgage process beyond the initial rate lock period) be provided free of charge in cases where the lender does not meet the promised time frame. If the lender is not willing to extend your rate lock for free or attempts to increase your mortgage rate because they did not meet the guaranteed closing date then consider working with a different lender.
A reverse mortgage, also known as a home equity conversion mortgage (HECM), can be an effective way for a senior citizen borrower to access the equity in their home but it comes with significant borrower risks. With a reverse mortgage, the borrower receives an upfront lump sum or upfront proceeds plus ongoing monthly disbursements. Unlike a traditional forward mortgage, with a reverse mortgage, the borrower makes no monthly payment and the loan balance increases over time, depending on the interest rate. The higher the rate, the faster the reverse mortgage balance increases over time.
If the mortgage balance increases faster than the value of the property then borrowers can lose part or all of the equity in their home. Simply put, if the reverse mortgage interest rate is higher than the expected property appreciation rate then the borrower’s equity in the property declines over time.
Review our free, comprehensive Reverse Mortgage Guide to understand the benefits and risks of a reverse mortgage
Due to government rules you can never owe more on your reverse mortgage than value of your property; however, you can lose all of your equity which means that your ownership stake is worth nothing.
It should raise a red flag if a lender uses a high property appreciation rate (4% or above) to try to convince you to do a reverse mortgage. Borrowers should use a more conservative appreciation rate (3% or lower) or contact a real estate agent to understand the expected property appreciation rate in your area. A reverse mortgage may be the right financial tool for you but make sure you understand how financial assumptions impact what your property equity could be worth in the future.
Understand Reverse Mortgage Pros and Cons
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