Be wary of unsolicited letters from mortgage lenders
Did you recently check your mailbox? You may have received numerous letters with one-time offers and special offers.
Even mortgage lenders send out these types of advertisements – but they often look like official documents that require your attention, which can be confusing.
If you received a letter titled "Fund Available Report" or the letter "You May Qualify for a Mortgage Insurance Premium Reduction," it is probably just an advertisement trying to get you to refinance.
You Might Be Qualified for a Refi However, you should not accept these types of letters at face value.
If you want to cash out equity or get a lower interest rate, throw this letter in the trash and do your own research to find out which lender can really give you the best deal.
Review your refinancing options (January 13, 2021)
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I have received a letter entitled "Fund Available Report". What does that mean?
Some mortgage lenders are trying to start new refinancing deals by sending official looking letters to homeowners. These come in different forms.
You may have received a letter with the title:
"Funds Available Report" "Funds Available Report" "Understanding Funds Available Report" Or "You Are Eligible for a Mortgage Reduction Premium"
Your name, address, and a numerical amount of "Funds Available" may be listed, along with other information.
The letter can look like an important notice from the federal government, the IRS, a bank, or another financial institution. (It most likely won't come from your current lender.)
But the truth is, it's probably just an advertisement sent by a mortgage lender.
"These letters are marketing articles designed to encourage a homeowner to refinance their home," said Grant Moon, CEO of Home Captain.
“They generally list a potential amount of money – the listed available funds available – that you could receive in a withdrawal refinance. And they can open your eyes, especially when the value of your property has increased and the amount of funds available is high. "
Indeed, Moon adds, the tempting amount of "resources available / accessible" can be exaggerated.
“There are many factors that determine how much a homeowner can pay off. Therefore, the values listed in the letters are often incorrect. They are supposed to get you thinking about the option, ”he says.
What to do if you receive a budget report
Usually when you get one of these letters, you have three options:
Ignore it. “If you're not interested, just throw the letter away, or better yet, shred it up. While receiving a sales letter like this without asking for it might be important, it's fairly common and likely harmless, ”advises MoonReport it. "If the letter comes from a private company, but is supposed to imitate a government document, I think that's wrong," says fraud attorney David Fleck. "In that case, I would like to urge you to file a complaint with your state's Department of Justice." Or you can make a complaint with the Consumer Financial Protection BureauExplore your options. If you are genuinely interested in the prospect of withdrawal refinancing, do your homework. You can call the number on the letter, but you can also turn to a few different mortgage lenders to see how competitive your offers are
You should never refinance yourself based on an unsolicited offer alone. The lender sending these letters may not be the most reputable – and there's a good chance you can find a better deal.
“These letters are designed to encourage homeowners to respond and apply for a loan. But the companies that send these types of letters tend not to be the lenders who offer the best interest rates and loan terms, ”warns Bruce Ailion, real estate attorney and broker.
If you think refinancing could benefit you – whether by withdrawing equity or lowering your interest rate and mortgage payment – there are at least three well-known reputable lenders you should reach.
Find out if you qualify, how much equity you really have, and what kind of business your new loan can get for you.
Check your refinancing eligibility (January 13, 2021)
Why Lenders Send Such Letters
Mortgage advertising is just like other advertising; They are designed to do business and make money for the sender.
Just because a lender says you can refinance doesn't necessarily mean it is in your best interests.
Baron Christopher Hanson, Senior Advisor and Owner of RedBaronUSA, states, “Letters like this are pure marketing and sales gimmicks that allow their seasoned salespeople to build a database of leads and earn a quick commission on many of the refinancing transactions they generate can."
You were likely targeted because Ailion said your financial information was legally sold and bought.
“Lenders, especially predatory lenders, will be looking for homeowners who have equity in their homes. This is usually determined by a tax assessment minus a mortgage balance, ”says Ailion.
"Once this group is identified, they will be cross-referencing borrowers, who often have high auto and credit card debt, to determine who would be a target for refinancing credit consolidation."
Do I really have a lot of home equity?
The numbers for "accessible funds" or "available funds" you see in this type of letter are an estimate of the equity built in your home. Theoretically, this equity could be paid out through refinancing.
Home equity is usually calculated by subtracting what you owe on your home loan from the market value of the property.
"The numbers you see on these letters are usually fake or teaser numbers designed to give you the impression that there is a large pot of money waiting for you when you answer," notes Ailion.
Without speaking to a lender directly, you may not know exactly how much equity to cash out, adds Moon.
The amount of money you can withdraw from your home depends, among other things, on your loan balance, creditworthiness, and the type of mortgage for which you qualify.
A lender cannot tell you how much equity to withdraw until after you fill out an application and the lender will review your finances.
Check your Withdrawal Refinancing Eligibility (January 13, 2021).
This is how you develop your own home safely
Pursuing a withdrawal refinance isn't the only way to take advantage of your home's equity. You might also consider:
Home equity – This type of loan is often referred to as a "second mortgage". It uses your home as collateral and usually comes with a fixed rate that is paid back over a period of 5 to 15 yearsHome Equity Credit Line (HELOC) – – Unlike a loan, this is a line of credit that you can draw from when needed. It also uses your belongings as collateral. You can withdraw over a set drawing period (usually the first 10 years) up to a pre-approved spending limit. The interest rate is not fixed – it is a preset variable interest rate that is determined by the current base rate. You only pay interest on the dollars you borrowed and start making the minimum monthly repayment as soon as you have any balance due
These types of loans provide cash without the need to refinance your entire mortgage balance. They could be a better option for someone close to the end of their mortgage term or someone who already has a very low interest rate.
"Talk to a trusted lender who can offer you the best home financing options for your situation," recommends Moon.
Other refinancing options
Refinancing is of course possible without a payout.
Many homeowners refinance to lower their interest rate and monthly mortgage payments, lowering the total cost of borrowing and leaving home equity untouched.
"This is a good option for any borrower who can cut their interest rate even if they don't have a lot of equity in their home," notes Moon.
Homeowners with government supported loans have an even easier option. They may be able to use a streamlined refinancing program that has faster approval and milder requirements.
Typically, with an optimized refinance loan, the lender does not require a home valuation and may not verify your credit or income.
The optimized refinancing options include:
In short, there are tons of different refinancing options out there. So there is a good chance that the lender sending mailers is not your best bet.
If you think refinancing is worth it, consider all of the options and pick the one that is most financial for you.
Check your new plan (January 13, 2021)