Churning a loan – it’s an inside reference to a scam performed by some lenders across the country. It works like this: because mortgage rates are at rock bottom interest rates, these lenders offer borrowers a rate lower than a borrower’s current rate. BUT this rate is not the lowest interest rate available, so if they can get the borrower to take this rate, the company knows that low interest rates will be around for many months in the future.
Then, a few months after that loan was closed, the company contacts the same borrower and offers them a lower rate than the one they gave them previously. You see, that mortgage lender should have given the borrower the lowest rate at the beginning, but now they can make money on two closings, all at the expense of the borrower.
This is what we call churning and it happens every day because borrowers don’t shop their loan around. The biggest offenders we have seen are the big-name national lenders that advertise a lot. Don’t assume your lender, especially the big national lenders, are giving you the best interest rates available in the market. Shop your loan around and be sure to shop with a local trusted mortgage company like Indigo Mortgage. We provide our mortgage rate and closing costs so you can compare and get the lowest rate and fees available up-front.