While dealing with cash-out refinancing, borrowers should be very careful with brokers and lenders. There may be possibility for the potential scams to occur. The borrower should not sign the refinance contract without knowing all the terms and conditions, known and hidden as well. Sometimes brokers may indulge the borrowers to take interim refinance loans for covering prepayment penalty with respect to the old mortgage. This is a very serious cash-out refinancing scam. Indeed this loan will not save the borrower from the prepayment penalty. In addition the borrower has to pay extra out of his pocket if he goes for this loan. In some other times, mortgage brokers give the borrowers kickbacks for involving the latter in repeated cash-out refinancing. If the borrower has tempted, he is the person who is going to lose everything. While doing repeated refinancing, he is, in one way, depleting the equity in the particular asset and borrowing at a very higher price.

There may a scam in this way also. The mortgage broker offers a highest rate cash-out refinancing on behalf of the lender. This refinancing carries a rebate covering settlement costs. The balance will be shared by the broker and borrower. Whenever the borrower has to pay that higher rate of interest, the broker will refinance the loan again by moving the loan to another lender by following the same process. Until and unless the lenders do not become wise, this process will continue and both the broker and the borrower earn profits. Sometimes lenders themselves by joining their hands with brokers involve in scams. They offer very lower prices on the refinancing loans initially. But when the borrowers are about to approach the lenders, they will play games and divert the borrowers on some other areas interesting to them. If the borrowers are very particular about the lower prices, then they make the borrowers to believe that prices will certainly drop in the market in the near future. So the borrowers should not respond to all those false offers made by the lenders.

Sometimes lenders will not mention the total processing fee to be borne by the borrowers. They will inform them only once the borrower has decided to take the refinance. The solution for this scam is that the borrower is required to obtain the full and detailed list mentioning the entire fee to be paid. Moreover the lender will not change the interest rate whenever there is a fall in it as per market conditions. But when there is rise, he will immediately check up his loan rate with the market rate and act accordingly. In order to avoid this, the borrower also should monitor the market rates time by time. This is also a very serious scam on the part of the lender. Sometimes brokers will mention some provision in the loan document favorable to the lender without mentioning anything to the borrower. So the borrower should take utmost care in seeing and analyzing all the loan documents involved. Moreover borrowers should not get cheated if the brokers tell about ‘no-cost loans’. It is because they are not at all no-cost loans. They may be zero point loans but not no-cost. Some fee is associated with all types of cash-out refinancing. However, if the borrowers do all the checking formalities, then neither brokers nor lenders will involve in any type of cash-out refinancing scam.