What Should I Be Cautious About?

Jon Shibley, President & CEO, Lenox Financial

Negative Amortization Loans

With loans where you are given the right to make a minimum payment even though your actual payment is much higher, the lender will take the difference and put it in the back of your loan in the form of negative amortization. In this case, your mortgage gets bigger instead of getting smaller.

Prepayment Penalties

They go against our philosophy of mortgage management. We definitely allow a prepayment penalty for some customers because a lot of people like to have a prepayment penalty to guarantee a short-term lower rate. However, overall we are against prepayment penalties because they prevent you from refinancing your mortgage as many times as you want, especially when you do it with a no closing cost loan because the market is improving. They negate the benefits when you have to spend thousands of dollars in a prepayment penalty just because you want to refinance your mortgage.

Know What You Are Doing

Outline your needs and make sure that when you select a mortgage, you are addressing those needs. Don’t do something for the sake of just doing it. Make sure that you outline the three or four things that you are trying to accomplish and stick with your plan. Make sure that the value is true on your mortgage, which means your house is going to appraise for the true value. You will get in a lot of trouble if you pulled out cash and did a lot of things based on the inaccurately appraised value of your property. Use common sense to make sure you are not getting financing based on shaky property values.

Liar Loans

Stay away from them! There are guidelines in place that state that if you make $60,000 a year, you will qualify for a maximum loan amount. Try to stay within the guidelines. There are loan programs that, because you have an excellent credit rating, will allow you to state whatever you want and act like you make whatever you want, but this doesn’t mean that you can afford whatever you want. Make sure you get a mortgage that you can afford.

Keep Your Eyes Open

Just keep your eyes open and use common sense in this world.