Veteran homeowners are often the target of dishonorable mortgage companies trying to take advantage of those who served our country. According to a Consumer Financial Protection Bureau’s VA “Warning Order,” some predatory lenders are trying to single out veterans with refinancing deals that leave them worse off. While these offers often appear official, they promote loan terms that are very tempting to homeowners. Here are a few telltale signs that the VA Home Loan Refinance is a scam so that homeowners can be aware of it and avoid falling prey to dishonest lenders.
Signs of a VA Home Loan Refinance Scam
Low-Interest Rates Without Specific Terms
Some lenders use deceptive, eye-catching low-interest rates in their advertisements. The advertised rates may be far lower than the homeowner’s current interest rate; however, they could result in higher monthly payments.
Any advertised mortgage rate should include the interest rate and the terms. It should include:
- Annual Percentage Rate (APR).
- Repayment period (e.g., 15 or 30 years).
- Type of mortgage.
- Discount points used to reduce the interest rate.
Additionally, interest rates vary among lenders. The advertised rate is just an advertised rate. The actual interest rate depends on various factors, including credit score.
Related: Why are there often big differences between interest rates quoted online?
15-Year vs. 30-Year Fixed-Rate Mortgage
A 15-year fixed-rate mortgage (FRM) typically has a lower interest rate than a 30-year fixed-rate mortgage, but it has a higher monthly payment because the principal is paid in half the time (180 monthly payments instead of 360 months).
Some VA loan refinancing scams omit the loan terms to trick homeowners into believing they are getting a great deal on a 30-year mortgage, which eventually results in higher monthly payments because the loan is actually for 15 years.
Fixed-Rate Mortgage vs. Adjustable-Rate Mortgage
An adjustable-rate mortgage (ARM) can have a lower interest rate than a fixed-rate mortgage at the beginning of the loan (teaser rate), but the interest rate adjusts at some point and might move up.
Deceptive VA lenders can advertise these refinancing loans so that they appear to have lower monthly payments throughout the entire loan. In actuality, though, the interest rate can go up drastically, pushing the monthly payment higher and higher.
Homeowners should always be clear about the type of mortgage a lender advertises and watch out for mortgages that sound too good to be true.
Discount Points Not Disclosed
Mortgage points, also known as discount points, can be purchased to lower the loan’s interest rate.
Each point costs 1% of the loan amount. For example, on a $300,000 loan, a discount point costs $3,000 and may reduce the interest rate by 0.25%, resulting in significant savings.
Deceptive advertising practices may not disclose that the loan includes buying points to lower the interest rate, driving up closing costs by thousands of dollars.
Related: Should You Buy Points to Lower Your Mortgage Interest Rate?
Offers That Advertise Skipping Mortgage Payments
The Department of Veterans Affairs prohibits lenders from advertising the skipping of payments as a means of obtaining cash in an Interest Rate Reduction Refinance Loan (IRRRL).
“Certain lenders nevertheless use this as a selling point when they are unable to offer cash-out or a significantly lower interest rate,” according to ConsumerFinance.gov.
Offers To Receive an Escrow Refund
Some lenders deceptively promise a certain refund from the escrow account in their advertising.
Truthfully, though, the amount in escrow when the loan closes and after all costs are paid cannot be known for advertising purposes. Numerous variables can affect the funds in escrow at closing.
Any offer for a VA mortgage refinance presented with a certain refund from the escrow account should be avoided.
Out-Of-Pocket Refinance Offers
CFPB says that one of the deceptive advertisements used with VA refinance loans is that there are no out-of-pocket costs. These lenders can make the ad sound like refinancing is free.
Some lenders’ deception is the non-disclosure that the closing costs are rolled into the loan; therefore, the borrower is financing the costs. Furthermore, lenders sometimes pay the closing costs and charge a higher interest rate to recoup the cost.
Aggressive Sales Tactics
Lastly, homeowners should watch out for aggressive sales tactics. If an offer does stand to benefit a homeowner, it’s unlikely a lender will pressure them with calls, emails, and texts.
Related: Veterans Affairs (VA) Mortgages
Marimark Mortgage is based in Tampa, Florida, and serves the mortgage needs of homebuyers, homeowners, and investors in Florida, Virginia, and Pennsylvania.
We specialize in mortgages for first-time homebuyers, conventional home mortgages, FHA, VA, and USDA mortgage options, refinance loans, and reverse mortgages. We’ve worked extensively with cash-out refinancing and help clients to lower their monthly mortgage payments.
To get started with a mortgage to buy your next home, please fill out our Quick Mortgage Application or contact us.