5 ways to identify mortgage refinancing scams

Know the red flags to spot common mortgage refinance scams. (iStock)

With mortgage refinance rates continuing to hover near historic lows, now could be a good time to angle for a better deal on your home loan. As of February 26, mortgage refinancing accounted for 67.5% of total weekly home loan applications, according to the Mortgage Bankers Association. 

But there's one thing to watch out for — mortgage refinance scams. 

Scams involving fraudulent mortgage refinance loans have become particularly problematic as a result of COVID-19. With people struggling to make mortgage payments, homeowners may be an easy target for fraudsters. Knowing how to avoid scams can help you protect your financial and personal information. 

If you’re thinking of refinancing, consider using Credible. You can ​use Credible's free online tool​ to easily compare multiple lenders and see prequalified rates in as little as three minutes.

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5 ways to spot mortgage refinancing scams

Some refinance loan scams are subtle while others are more obvious. Knowing the most common red flags to be aware of can help as you compare mortgage refinance options. Here are some simple ways to root out a refinancing scam:

1. Determine if a mortgage lender is legitimate

Before offering up any financial or personal information for mortgage refinancing, you first need to know who you're dealing with. One of the most common mortgage scams involves phishing, in which you're contacted by mail, email, phone or even text message by a seemingly legitimate mortgage lender. If you receive an unsolicited invitation to refinance mortgage debt, do your homework to determine if the offer is legit. You can also reach out to Credible's experienced loan officers to get your mortgage questions answered. 

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2. Be wary of unusual or excessive fees

There are certain costs involved with mortgage refinancing but a sure sign of a potential scam is being asked to pay an upfront fee before a lender has actually done anything for you. Refinance scams can also be characterized by unusually high fees or seemingly hidden fees that get rolled into the loan without explanation. 

3. Resist high-pressure tactics

With refinance rates as low as they are, it's tempting to agree to loan terms at the suggestion of a lender. But scammers posing as lenders may resort to high-pressure tactics to get you to agree to a refinance loan without fully understanding what you're committing to. Instead, take time to compare mortgage rates using an online tool like Credible to see what you may be prequalified for. 

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4. Get it in writing

Regardless of how low mortgage refinance rates go, don't sign off on a loan without reading through the documents carefully. Ask to see a "Truth-In-Lending disclosure" if one hasn't been provided to you yet and comb through it to look for unexplained or hidden charges. Keep in mind, however, that you could still be targeted by a bait and switch scam, in which a refinance lender replaces or alters loan documents after you've signed them. 

5. Trust your instincts

Here's a simple rule of thumb for avoiding mortgage refinance scams: If something seems too good to be true, it probably is. A lender that promises you low mortgage refinance rates that you wouldn't ordinarily qualify for based on your credit score, for example, may be selling you a bill of goods in order to defraud you. Likewise, a lender that asks for your social security number, bank account number or other sensitive personal information right away may be targeting you for a scam. 

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Is it wise to refinance your mortgage now?

If you want to save on mortgage costs, low rates make that an inviting prospect. When weighing whether you should try and take advantage of near-record low refinance rates, there are some things to consider first. 

For example, how likely are you to qualify for a refinance loan and get the most favorable mortgage rates? The coronavirus pandemic has led many lenders to impose tighter restrictions on mortgage borrowers. That includes looking more closely at a homeowner's credit score, credit history, credit utilization rate and debt-to-income ratio. 

Also, consider whether refinancing a mortgage makes sense from a financial perspective. Even with record low refinance rates, your savings from refinancing could be minimal if you don't plan to stay in the home long term or you've already paid down a sizable part of the principal on your original home loan. 

Using an online mortgage refinance calculator can help you estimate your monthly costs for a new loan. Shopping around for a refinance loan also matters. If you’re thinking of refinancing, consider using Credible. You can ​use Credible's free online tool​ to easily compare multiple lenders and see prequalified rates in as little as three minutes.

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Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.

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