May 19, 2024

Jocuri

Mad about real estate

Adjustable Rate Mortgage Loan: How to Avoid Scams

If you are availing an adjustable rate mortgage loan, be informed about the various scams and frauds of ARM. Such scams can cost a homeowner his equities if borrowers do not avoid certain common mistakes.

How do scammers get borrowers’ information?

To prevent yourself from getting in any adjustable rate mortgage loan scams, it is most important that you know the scammer’s source of information. The scammers usually gather information from companies that keep personal records of individuals. They target people who have bad credit report or financial crisis.  

What are the tips to avoid ARM scams?

To avoid scams of adjustable rate mortgage loan, borrowers need to be careful and informed about the consumer laws. Given below are 4 tips to help you stay away from scams. 

Beware of lenders who refuse to disclose payment details: Before applying for ARM loans, do some thorough research about lenders and their payment details. Use internet to have a quick check on various lenders’ profile. The most common loan scam that lenders carry out is not providing detailed information initially but charging higher rates later. As per the laws, a mortgage lender is bound to provide you detail information about rates, fees and closing costs to the borrowers. If a lender is not ready to provide details of rates, fees and closing costs, don’t opt for loan from that lender.

Do not sign on any blank or incomplete document: If your lender wants you to sign on any documentation that is incomplete or false, be sure that he is up to some foul play. The lender can fill out the blank document as he wishes with higher interest rates and fees that can cost you the home. Providing false information can also land you in legal problems.

Beware of mortgage lenders who are too pushy: If a mortgage lender is trying hard to sell you their loan, be careful and never agree to the unfavorable terms of these “hard selling” lenders. Honest lenders will never try to up-sell a mortgage.

Beware of negative amortization: Negative amortization happens in ARM loans when the monthly payment does not include full due interest. The interest that is not paid is added to the principal balance which in turn increases your loan balance. ARM with negative amortization is known as Option ARM which is very risky as the monthly payments increase with the rise in interest rate as per market index. Dishonest lenders take advantage of this increase in rate to defraud borrowers. 

Before taking out an ARM loan, it is important that the borrower should understand the terms and conditions and have clear knowledge about the loan. He should be well aware of the consumer laws to fight back in case of scams. Only then he can avoid falling into ARM scams/frauds.