March 2, 2011

Free Refinance Offers In the Mail - Scam or Good Deal?

Clark Howard recently wrote about a certain kind of refinance deal that might appear to be a scam but isn't.
I've actually gone through one of those deals myself and can speak from experience with it.

Every so often I get a letter in the mail that looks all important and official and is advertising a great deal to refinance my home that I am eligible for.   These are almost always just unsolicited marketing from mortgage companies fishing for business.   Many of them are virtually scams with horrible rates.   But once years ago I got a pretty package from Wells Fargo offering to refinance my rate and drop it a full 1% with no out of pocket costs or closing costs at all.   That offer was from Wells Fargo and they had my mortgage at the time.   It turned out to be totally legit and I took the offer.   The offer I got from Wells Fargo was actually a higher rate than I could have gotten if I shopped around but low enough to be appealing with a no hassle $0 cost deal.  

How to spot the scams:

  • Usually just a letter in an envelope.  
  • They probably don't know anything more about you than your name and address which is public record.
  • The offer doesn't know your current rate and doesn't really know exactly what their offer will save you.
  • Has various qualifiers like "up to" or "could save" or "may be eligible for" which means it doesn't apply to everyone.
  • The offer is not from your bank and is from some mortgage company you've never even heard of.
  • They sound like they might be affiliated with some government deal or special offer for your mortgage but theres nothing in the language that really affirms that, they just imply it heavily.

How to spot the potentially good deals:

  • Its from your bank that holds your mortgage.
  • They are offering a specific rate with details on the rate and specifics on the closing costs.
  • The rate isn't necessarily the best rate in the world but better than your current rate. 
Of course an offer from your bank isn't necessarily a great deal.  You should check the details thoroughly and make sure there are no hidden costs or that the costs aren't just being added to the principal.

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