Low Interest Rate Mortgage

One of biggest effects of recession in the real estate industry is the increasing difficulty in obtaining mortgage. Although the interest rates in mortgage and refinancing is very low, getting approved for a mortgage is never easy. Lending companies are very strict in their screening process.

Even if you are in good credit rating with no outstanding debt, companies can dig out your personal financial history and pin point a specific reason why they have to deny you on your mortgage or refinancing application. This is increasingly frustrating for consumers that they opt for alternatives and become prey to different type of scams.

You may have already heard this on the radio or saw this offer online. There are small lending companies who, in their hope to be competitive, will offer a very low interest rate in mortgage transaction.

In their offer, they will promise you with a 1.25% interest rate in mortgage. That is a low lower compared to standard interest rate which stands within the 5% range. Maybe you receive a telemarketing call or even a fax informing you that you could be approved in no time as long as you provide the right documentations.

But this form of transaction is a scam. This type of mortgage is a form of negative-amortization mortgage. Understand the concept is very difficult because there too many factors to consider. But there’s one thing for sure – this type of mortgage used be aimed for the rich only since they can muster a large amount anytime they want.

They can be lax in their mortgage payment for a few months and just pay the rest at the end of the year. This is often the arrangement of some celebrities since their project is never consistent so they have to miss a couple of months or pay a little bit for now and pay a large amount later.

This type of scam could be easily spotted since they fall into the category “too good to be true category.” They sound very nice over the phone or on the radio that it’s almost unbelievable. When it comes to money, everything that’s too good to be true could be a scam. If a company offers 1.25% in mortgage, they are practically digging their bankruptcy grave since they can’t recoup their spending on daily operations. The interest rate just doesn’t make any business sense.

If you take a look at the offer more closely, you’ll realize that you could easily fall into massive debt in as little as six months. Through this arrangement, you are only asked to pay part of the interest rate per month instead of paying them in full.

That means the rest of the interest rate will become an added loan which could accumulate over the years. For example, your regular interest rate should have been $1,300 per month. But instead of paying the full amount, you are only asked to pay $300.

You still have to pay for $1,000 eventually but it will accumulate. In just six months, your total debt will increase to as much as $6,000 without even touching the principal amount. The convenience of paying $300 in exchange of a massive debt at the end of the month is just not worth it.

For that reason, just say no when you are offered with this rate. The 1.25% interest rate is not a good arrangement for those who are not earning millions of dollars every month. Their offer is a scam and should never be entertained in anyway. This is a very expensive financial disaster that could take a lifetime to fix.