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  • Cal Crismore

Churning a Loan, What is it?

Churning a loan is an illegal practice that some lenders use to take advantage of borrowers.

Churning a loan is when the lender encourages a client to repeatedly take out and pay back a loan in order for the lender to get the fees associated with it. This is illegal because it's considered predatory lending, which is when a lender tricks or forces someone into taking out a loan that they can't afford. This can ruin someone's financial future and cause them to fall into debt.

An exampe of how churning a loan works: mortgage rates are at rock bottom interest rates and a lenders offers a borrower a rate lower than a borrower’s current rate. BUT this rate is not the lowest interest rate available, so if the can borrower takes this rate, the lender knows that lower 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 initially gave them. The mortgage lender should have given the borrower the lowest rate from the start, but now they're profiting off of two closings at the expense of the borrower.

This is called churning, and it happens frequently because borrowers don't compare rates between lenders.The biggest offenders of this sort of practice happens among the larger and more well-known national lenders. When shopping for a loan, don't just go to any lender, loan rates vary depending on the company, so make sure to shop around with different trusted mortgage companies. Here at Avance Group we'll be sure to give you the best interest rate available in the market.. Our mortgage rate and closing costs are the lowest available, so you can be confident that you're getting the best deal.

Avance Group; Your Local Mortgage Broker

If you're thinking about purchasing a home in New Mexico, Avance Group is a local mortgage broker that can help you with your down payment assistance, home purchase, refinance, new construction, renovation, and more! Call us today at 817.524.6655 to get started!


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