Picture this: You receive a mortgage offer in the mail for a fixed-rate loan with a ridiculously low interest rate. A 30-year fixed-rate loan for 3.25% sounds like a good deal, right? So what’s the catch?
Look at the APR — it gives you a better measure of total cost since it considers the interest rate plus any extra fees. If it’s anything in the 4% range, you’ll be paying a boatload in points and fees on that 3.25% loan. What’s a cash-strapped borrower to do? Here’s what to consider before opting into a mailed offer like this one.
It Could Be a Time-Consuming Process
Direct-mail mortgage companies are high-volume shops. As such, you’ll have to do business with them on their terms — and there will be a lot of paper you’ll need to review before signing. Be prepared to invest plenty of time.
‘Easier’ May Be Easier Said Than Done
The pitch is “working will be easier because we own your loan.” But here’s the reality: Today’s mortgage-loan world is full of documents where the ability to repay must be put down in ink. You’ll still need to supply and work through a certain amount of documents in order to qualify for the refinance. (As an aside, an FHA Streamline Refinance requires very little to no financial documentation if you are refinancing from an FHA loan to a new FHA loan.)
You Won’t Get Much Face Time
The loan officer making that snazzy offer could be hundreds of miles away. You will need to trust your Social Security number and other personal information to this individual and their organization, and you may never meet them, which is something that may make you nervous in this age where identity theft is becoming increasingly common and data security is in the news regularly. (You can learn more about the dangers of identity theft — and how they can impact your credit — here.)
Ultimately, the choice is yours, but you should work with a lender you trust. If that is a representative at your current mortgage company or a direct-mail lender, so be it.
Before you apply for any type of financing, be sure you know where your credit stands, as this will affect what type of conditions you may qualify for. You can get two of your credit scores for free on Credit.com.
Scott Sheldon is a senior loan officer and consumer advocate based in Santa Rosa, Cali. His work has appeared in Yahoo! Homes, CNN Money, MarketWatch and The Wall Street Journal. Connect with him at Sonoma County Mortgages. More by Scott Sheldon