A new type of Mortgage loan that is being offered…Beware.

With 30 year mortgage rates dipping below 5% some people are shopping around to see if a re-fi makes sense. I got a phone call from one client who had gone to a large institution and was “shopping” for a re-fi, she figured she would check in with me to help her with a breakeven analysis and to make sure she understood what was being offered, always a good thing to do before signing papers. The newest product that is out there is a fixed rate 5 year loan say at 4.5%, but at the end of 5 years you have to re-apply. Stop right there, if such a product is offered to you, politely decline and walk out the door. This program could potentially be more toxic than ARM’s, remember all ARM’s are not treated the same, they are not all bad, but any loan that doesn’t “guarantee” that you will have a loan 5 years from now is nothing you want to get into. I don’t know the full details but when the word “re-apply” comes into play you are in dangerous territory.

If anyone is familiar with such loans and I have misunderstood what is being offered please correct me. I have called a Mortgage Broker that I know and they say that they had not heard of such a program but if they come across it they will pass on the info to me. But I wanted to make sure that people are very careful if these loans are being offered to them. So heads up everyone.

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~ by debt2dreams on April 28, 2009.

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