Education for Justice FACT SHEET C-9 Fall 2008
THINK HARD BEFORE REFINANCING
WHAT DOES REFINANCING MEAN?
Refinancing means getting a new mortgage on your house or a new loan to take the place of the one you already have. Many banks and finance companies offer refinancing. Some advertise it on TV as a “magic” fix for people with debts because you can take out extra money to pay other bills. Others send offers in the mail, by e-mail or call you on the phone. They make it sound like you can solve your debt problems just by filling out a form. Refinancing is tempting, because it can get bill collectors and creditors off your back. But in many cases it will just dig you into a deeper hole. It can also put your house at risk for debts that could not affect your house before you refinance. Be careful!
Refinancing often has hidden costs and fees, and other loan terms. Even well-known lenders sometimes make unfair refinancing deals. Do not sign a refinancing deal before talking to a trusted financial advisor.
You can get help from:
· Don’t Borrow Trouble (612) 312-2020
·
The
· HUD Housing Counseling 1-(800) 569-4287
They can tell you about agencies near you that offer credit counseling, foreclosure prevention, and can help you decide if refinancing is a good idea for you.
DO NOT REFINANCE YOUR HOUSE TO PAY OTHER BILLS
If you cannot pay a mortgage, you may lose your house. This is much worse than anything that can happen to you for not paying credit card bills, utility bills, or hospital bills. None of these bills can affect your house.
A mortgage is a “secured” debt. Secured means that you put up “collateral” – property that the lender can take if you do not pay. Credit cards are not usually secured. If you do not pay, they can sue you, get a judgment, and then collect it by taking money from your wages or bank account. But they cannot take your house! See our fact sheet, Your Rights in Garnishment.
The general rule is, never turn unsecured debt into secured debt. In other words, do not use a home mortgage to pay off your credit cards or other credit debt. If you are thinking about doing this, talk to a credit counselor first to see if it makes sense for you.
DO NOT LET A DEBT COLLECTOR TALK YOU INTO REFINANCING
It’s their job to get their money any way they can. There are other ways to deal with them. See our fact sheet, Your Debt Collection Rights. If they want you to refinance, just say NO!
NEVER TURN YOUR CAR LOAN INTO A SECOND MORTGAGE
If you turn your car loan into a 2nd mortgage on your home and cannot pay, they can take your house. If you cannot pay on a regular car loan, only your car is repossessed. Do not get a mortgage to pay off your car loan!! It’s better to lose your car than your home.
IF YOU ALREADY HAVE A LOAN WITH A FINANCE COMPANY, DO
NOT REFINANCE WITH THE SAME COMPANY
Ask the company to lower payments on the loan you already have. Do not let them talk you into refinancing. You can end up with higher interest, and many new charges.
NEVER REFINANCE AT HIGHER INTEREST
The interest on the new loan must be lower than the interest rate you are paying now, or you lose money – lots of money.
ONLY PUT YOUR FIRST MORTGAGE INTO THE REFINANCE IF
YOU GET LOWER INTEREST AND A GOOD DEAL
Only consider refinancing if the new loan has a MUCH lower interest and the payments are the same or less. NEVER do it if the refinance has a “balloon payment”. A balloon means you make a low monthly payment for a time – like a year or several years - and then you have to pay the whole rest of the loan off in one payment. The balloon payment can be thousands of dollars. If you do not have the money, or cannot get a loan for it, you will lose your house. Even if you can get a loan for it, it’s not a good deal because you have to pay all the fees for refinancing all over again.
BEWARE OF EXTRA CHARGES
Most refinancing deals will have “points,” broker’s fees, title fees, and other charges, in addition to the interest. Make sure you know how much all of these will cost you. Beware of “extras” like credit insurance. Credit insurance is usually a bad idea. But many lenders will try to sneak it in or make it seem that you must buy it in order to get a loan. They make a lot of money from selling that insurance, and it doesn’t do you much good.
YOU HAVE 3 DAYS TO CANCEL ANY REFINANCING THAT
INCLUDES A HOME MORTGAGE
You should get a Notice of Right to Cancel when you refinance. You can fill it out and return it within 3 days to un-do the whole thing. If you do not get that notice, and want to cancel the refinancing, write a letter saying, I do not want to refinance, sign and date it. Keep a copy. Hand deliver it, or send it by certified mail to the bank or finance company. Save the certified mail receipt.
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