high interest

Home loans can be intimidating, especially for new borrowers. Indigo Mortgage New Mexico is here to explain a key concept to borrowers, churning. Here are a few aspects of churning and how to avoid it when purchasing a home.

Lenders make their money from originating mortgage loans and then selling them off. The more loans these lenders originate, the more money they make. If a lender can get the same borrower to refinance numerous times, they continue to make money off of that specific borrower. Churning happens when mortgage lenders charge unusually high-interest rates to the borrower. In essence, the mortgage lender charges high rates, knowing that they can reach out to the borrower in six months to refinance into a lower rate, which they will then make money off of. This can happen several times to one borrower. For example, a mortgage lender will charge an 8% rate when the going rate is 6%, then in six months, reach out to the homeowner to refinance at 7%, and another few months later, contact them again to lower their home interest rate to 6%. This technique is known as churning and is, unfortunately, more common than one may think, but it can be avoided by working with a lender you can trust.

When working with individuals purchasing a new home, we see honesty as the best policy. At Indigo Mortgage, there are no hidden fees or surprises. We aim to offer our borrowers the lowest rates possible. When shopping for a mortgage, it’s always a great idea to shop locally. Reach out to the Indigo team with any questions or to get started with your next home purchase.

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