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Originally Posted by Veterans Day
ya the 2/28's and 3/27's are the standard loans subprime lenders give. Meaning the rate is locked for 2 or 3 years. Then the wild nasty fluctuations happen after such time. 99% of the time if you take a 2/28 or 3/27 you will get a prepay penalty also, meaning if you refi or pay the loan in full before the 2 or 3 years they typically charge you 6 months interest ontop of your current payoff. Its brutal, its ugly and it has the ability to wreck you financially. They suck, period. The theory these brokers use is the "Lets use this crap loan so you can get back on track financially and credit wise, then we can get you out of this into a FHA or conventional loan program." This fails many ore times than it happens. If your a subprime borrower the lenders know your unlikely to change your ways. Thats why they pay huge commissions to brokers for doing 2/28 and 3/27 loans. They know most people never leave cause they dont change thier spending and credit lifestyles.  |
You are correct in some ways. If you try to prepay by refinancing BEFORE the 2 year adjustment, then you will pay a penalty. The trick is too pay at least one month at the higher adjusted rate, THEN refi.
As for not getting back on track financially, this is not the fault of the lenders, it is the fault of the people getting the loans that don't get their crap together.
If Forest was to REALLY work on fixing his credit, and then paid one month into his higher adjusted rate after two years, he could make this work, refinance, and fix his situation. If he waits another year to fix things, the housing prices in this area will be SKY HIGH and it will be much harder for him to afford anything.