Home Mortgage Refinance Blog

In all probability, you must have received offers like "Important Financial Information Enclosed. Need $2.5 million at 1 percent to 2 percent to buy or refinance a home? No problem.” These offers come with a zero down payment clause and offer extremely attractive interest rates.

These offers are made by mortgage brokers, estimated at 250,000 nationwide, most operating outside the purview of banking regulators. Previously, banks, savings and loans were the primary source of mortgage funding. However, their share has gone down below 50% in the last few years, with aggressive mortgage brokers capturing  a substantial market share. The Federal Reserve has reported that the share of mortgage brokers shot up to $650 billion in 2005 up from $56 billion in 2001.

Most of these loans have adjustable interest rates written in fine print. These rates can start adjusting in as less as 30 days. While, the monthly payouts for customers may be low, the interest rate adjustments reduce or wipe out principal repayment. In extreme cases, the entire interest amount may also not be covered. The unpaid interest amount starts accumulating and gets added to the outstanding principal, depleting the homeowner’s equity.

While, these mortgages may seem very attractive initially, they are likely to turn burdensome in the years to come. Please be very careful, while selecting your financier and keep your future secure.   

Click here to learn, where these brokers get their capital from.