Tough Conditions of Exotic Mortgages

As a result of the recent subprime mortgage fiasco and subsequent scrutiny by the national government, refinancing your home mortgage can be exceedingly difficult. Because of these recent issues– home foreclosures having recently hit a record high– lenders have started to raise their standards in issuing loans. To make matters worse, home values are increasing just slightly– that is, if they’re increasing at all. Not only are many people stuck with much higher rates than they had expected, it’s also much harder to sell your home and escape the ordeal. If you or someone you know has bought their home in the last few years with an adjustable-rate or interest-only mortgage, or with some type of payment option plan, then it’s time to refinance and save some money.

Avoiding Painful Prepayment Penalties

Before you can go ahead with the process of refinancing your mortgage you’ll need to find out if you have what is known as a “prepayment penalty” on your current loan. Seeing as how you more than likely got a low interest rate initially, lenders have put safeguards in place to ensure that the loan length is longer than normal. These prepayment penalties, which become active when you refinance, can be up to six months worth of interest.

So how can you avoid having to pay these prepayment penalties? There’s no guarantee, but many mortgage lenders are waiving them. The first step is to talk to you lender about waiving the fees– but be ready to be told that they’re sold your loan to investors, in which case you’ll need the investors’ approval too. Most lenders will work with you to avoid foreclosure. In many cases they have reduced interest rates for that reason. The most important step is to get in touch with your lender before you start to fall behind on your payments. Don’t get stuck trying to dig yourself out of a hole.

Be Cautious about Your Refinance

If you manage to escape the tough conditions of your exotic mortgage, then be sure that you don’t make the same mistake twice going into your refinance; it’s easy to go for the first loan that saves you money immediately, but are you sure that it will offer more than brief relief? Start out with the recognized lenders. There will be plenty of lenders, and brokers, chomping at the bit to offer their services– but such companies typically have much higher interest rates, among other downsides. Also, if you ask the company which did your title work earlier, you may be eligible for a reissue rate on your title insurance, which can save you a substantial amount of money. Don’t make the same mistake twice; be sure you know exactly what you’re getting yourself into when you go to refinance your mortgage.