Watch Out! Protect Yourself from Homeowner Scams

Watch Out-Protect Yourself from Homeowner Scams- 150x150Whether you are a home seller, a home buyer, or a home owner, there is always a chance that someone will try to take advantage and scam you. Homeowner scams have been around for a while, but depending on the state of the housing market, new and improved scams are developed. Sometimes, even those who have taken all the necessary precautions to protect themselves can be preyed upon by scammers.

Most scams are designed to prey upon those who try to refinance existing mortgages, but there are plenty of scams designed for home buyers and sellers, as well. There are several laws, such as the Fair Housing Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, the Truth-in-Lending Act and many others that have been created to help home buyers, sellers and owners, but some lenders find ways to circumvent them. Organizations like the Federal Trade Commission are responsible with implementing these laws, but consumers should also be aware of the dangers that are out there and find out how to better protect themselves. Here is a list of the most common homeowner scams that you should protect yourself from.

1. Bait and switch. This scam is used in many industries, especially in retail stores, but it has also found its way into the lending industry. Lenders who use the bait and switch usually advertise a low interest rate through several means, such as newspaper advertisements or billboards, but don’t actually offer that deal to anyone. When the borrower inquires about the low rate, he or she is told that it is not available anymore, but a slightly higher rate can still be obtained.

2. Bait and remember. Mortgage loans have pretty high closing costs. These costs should be taken into consideration when applying for a mortgage loan and your lender should inform you of them. But some lenders pretend that they forgot to inform you until you are too far into the process to back out. This can be a very expensive problem for you, as some of the closing fees are as high as several thousands of dollars.

3. Loan steering. Some lenders may deny your application for an advantageous loan which features great terms, such as a low interest rate and low closing costs, even though you are perfectly qualified for that mortgage. In order to make more money, they will steer you towards a more expensive loan, giving you reasons for being denied on the better loan such as having a low credit score or problems with your income.

4. Adjustable-rate mortgages. Adjustable-rate mortgage loans are perfectly legal, but the lenders are required to inform the borrower of how much the loan interest rate can fluctuate in the future. Some lenders offer great deals on adjustable-rate mortgages initially, but with very high interest rates in the future.

5. Negative-amortization loans. This type of loan is illegal in most areas of the United States, but some lenders still get away with offering it to their customers. A negative-amortization loan requires you to pay a smaller interest than what it is owed, with the difference being added to the principal balance of the loan. This leads to a principal balance that increases over time instead of decreasing.

6. Cash-out refinancing. Cash-out refinancing is legitimate and is a viable option in certain situations, but some lenders use it in order to get borrowers to use it for paying off smaller debt. This seems like a good choice for borrowers because their monthly payments for credit card and other debt decreases, but the overall cost will be much greater than their initial debt.

7. Equity stripping. An owner who is struggling financially is convinced to transfer the title to his or her home in order to qualify for a different loan, after which the owner loses ownership of the home. Also, when this happens there is a big chance that the owner will still owe money on the home that he or she lost.

When it comes to homeowner scams, prevention is the most important. Sometimes, home owners find out they have been fooled a little too late, and it may be too late to turn back. While some scams are a hundred percent illegal, and there’s little you can do about them if you have been targeted, some can be avoided by simply documenting yourself and reading the fine print.

What is Mortgage Amortization?

What is Mortgage Amortization- 150x150Mortgage amortization is the systematic repayment of calculated interest and principal over a previously determined period of time. Basically, it is the process of repaying a mortgage loan through monthly payments. During mortgage amortization, the principal on a mortgage loan declines, as the borrower makes monthly payments. Each time a payment is made, a part of it goes towards reducing the principal, and another part of the payment goes towards paying the interest on the mortgage loan.

The Mortgage Amortization Process

When you take out a mortgage loan, the lender sits down with you to determine your monthly payments over the life of the loan. These payments must be something that you are comfortable with, that you can fit in your budget. These payments must be made on time and, more importantly, in full, including the interest and a portion of the principal, in order for the mortgage to amortize. When the mortgage loan is paid off, your mortgage is fully amortized.

In case the mortgage amortization is not happening, the lender must adjust your monthly payments, so that you are paying against the principal. This might make your monthly mortgage payments increase suddenly, which may cause financial issues.

When mortgage amortization starts, in the early years of paying off a loan, most of the monthly payments that you will make will be applied to the loan’s interest, and only a small percentage will go against the principal. As more of the principal is paid over the years, the interest starts to go down, which will lead to a much faster mortgage amortization in the later years of the loan. As a result, the equity that you will have in your home will also increase faster.

When using an online mortgage calculator, it is harder to figure out how much money you will be paying over the life of the loan. Online mortgage calculators use data such as your down payment amount, the total amount of your loan, and your interest rate to give you an estimate of how much your monthly payment will be, but they won’t help you figure out the total amount that you will be paying by the time your loan will be paid off. High interest rate loans and long mortgage loan terms can result in you paying thousands more on your mortgage, sometimes even double the original loan amount.

How to Calculate a Mortgage Amortization

Both fixed-rate and adjustable-rate mortgages fully amortize at the end of the term, whether it’s a 15-year adjustable rate mortgage or a 30-year fixed rate mortgage, with the condition that monthly payments are made on time.

To calculate a mortgage amortization, you need to have knowledge of a few key factors that are involved in your mortgage loan, such as the periodic interest rate and the loan balance. To find out the first month’s interest rate, you must multiply the loan balance by the interest rate. To find out the principal, you must subtract the interest from the total payment. To find out the interest and the principal for the next month, subtract the previous monthly payment from the mortgage loan balance, then repeat the steps described above.

The Amortization Schedule

The amortization schedule is a table that presents each payment from a mortgage in detail. Amortization schedules are generated by amortization calculators, and they show how much of each monthly payment is the interest and how much is going towards the principal balance. While a payment goes towards paying both the interest and the principal, the exact amount varies, and needs to be calculated with an amortization schedule.

When shopping for a mortgage loan, make sure you fully understand the mortgage loan process, your rights and what is expected of you. Various online mortgage calculators can be of great help, but always be aware of the lender’s rules and conditions. Taking that extra precaution before deciding on a mortgage loan can save you a lot of money and hassle in the long run.