What to know about letters from mortgage lenders
Checked your mailbox lately? Chances are you get plenty of letters offering one-time deals and special offers.
Even mortgage companies send these types of advertisements — and they often look like official documents requiring your attention. But in most cases, these are just ads trying to get you to refinance.
It’s best to toss these letters in the recycling bin. If you really do want to refinance, doing your own research will lead you to the best deal.
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I got a “Report of available funds” letter. What does it mean?
Some mortgage lenders try to solicit new refinance business by sending official-looking letters to homeowners. These come in a few different forms.
You might have received a letter titled something like:
- “Report of available funds”
- “Report of accessible funds”
- “Understanding your available funds report”
- Or, “You qualify for a mortgage insurance premium reduction”
A letter may list your name, address, and a numerical amount of “available funds.” These letters may even show your approximate account balance, which they use to estimate the amount of funds you could cash out.
These letters could also look like an important notice from the federal government. A couple of years ago this pretty convincing letter was going around, but it didn’t actually come from the Department of the Treasury.
Similar letters may look like they came from the IRS, a bank, or other financial institution.
Such a letter most likely will not come from your current lender.
While they may look official or important, these ‘report of available funds’ letters are actually just advertisements.
“These letters are marketing pieces designed to entice a homeowner into refinancing their home,” explains Grant Moon, CEO of Home Captain.
“They generally list a potential amount of money — the ‘available funds’ listed — that you could get in a cash-out refinance. And they can be eye-opening, especially if your property’s value has appreciated and that available funds number is high.”
Actually, Moon adds, that enticing “available/accessible funds” sum may be exaggerated.
“There are many factors that go into how much a homeowner can cash out, so often the values listed on the letters [may be] incorrect. They are designed to get you thinking about the option,” he says.
What to do if you receive a report of available funds letter
You typically have three choices you can make when you get one of these letters:
- Ignore it. “If you are not interested, just throw the letter away or, better yet, shred it. While it might be concerning to get a solicitation letter like this without asking for it, it’s relatively common and likely harmless,” advises Moon
- Report it. “If the letter comes from a private company but was designed to mimic a government document, that’s deceptive in my legal opinion,” says fraud attorney David Fleck. “In this case, I would urge you to file a complaint with your state’s Department of Justice.” Or, you can file a complaint with the Consumer Financial Protection Bureau
- Research your refi options. If you’re genuinely interested in the prospect of a cash-out refinance, do your homework. You might call the number on the letter, but also reach out to a few different mortgage companies to gauge how competitive your offers are
You should never refinance based on an unsolicited offer alone. The lender sending those letters may not be the most reputable — and there’s a good chance you could find a better offer.
“These letters are designed to prompt homeowners to respond and apply for a loan. But the companies that send these types of letters are typically not the lenders offering the best interest rates and loan terms,” cautions Bruce Ailion, a real estate attorney and Realtor.
If you think a refinance could benefit you — whether by cashing out equity or lowering your rate and mortgage payment — you should check in with at least three well-known and reputable lenders.
Find out whether you’re qualified, how much equity you truly have, and what kind of deal you can get on your new loan.
Why lenders send letters like this
Mortgage advertisements are just like other ads. They’re intended to drum up business and make money for the sender.
Just because a lender says you could refinance, doesn’t necessarily mean it’s in your best interest to do so.
Baron Christopher Hanson, lead consultant and owner of RedBaronUSA, explains: “Such letters are purely marketing and sales gimmicks that enable their slick salespeople to build a database of leads and make a quick commission for many refinancing transactions they can generate.”
You likely got targeted because your financial data was legally sold and bought, according to Ailion.
“Lenders, especially predatory lenders, will search for homeowners with equity in their homes. This is typically determined by a tax appraisal minus a mortgage balance,” Ailion says.
“Once this group is identified, they will cross-reference with borrowers who often have high automobile and credit card debt to determine who would be a target for loan consolidation by refinancing.”
Some letters may be intentional scams
While most letters are probably advertisements you can ignore, it’s possible your letter could be an actual attempt to steal money from your deposit accounts.
For example, if any letter asks for your checking account or savings account numbers — or for any specific account information about your mortgage — you could be dealing with a genuine scammer.
These kinds of scams use public information about your mortgage to bolster their case for legitimacy. They also may include official-looking logos to give recipients a sense of security — logos from the FDIC, an ATM network, or the Treasury Department, for example.
If a recipient calls the toll-free number in the letter, the operator will ask for sensitive financial information, purportedly so you can receive a direct deposit or a wire transfer.
In reality, the operator will likely transfer money out of your account, draining your available balance. Or, if the operator asks for your Social Security number, you could be dealing with an identity theft attempt.
Along with sending letters to encourage phone calls, some scammers now send text messages or call you directly.
Of course, you should never share details about your bank account or other financial information over the phone or through the mail.
And, as fraud attorney David Fleck pointed out, you should report the fraud attempt to your state attorney general’s office or the federal Consumer Financial Protection Bureau.
How does the letter know my account balance?
Whether the letter is a scam or an advertisement, letter recipients can get worried when the letter seems to know their mortgage balance and amount of equity.
But as long as the letter doesn’t include your mortgage account number, it’s probably just using public information about your loan to calculate your loan balance and the amount of funds you have available as home equity.
Anyone who knows your full address can use online search tools, in most U.S. counties, to find public information about your mortgage.
Even if your account balance isn’t available as public information, the date you closed the loan and the term of your loan can be used to estimate your mortgage balance.
It’s also possible your loan servicer has legally sold some of your account information to a third party.
No matter what a letter seems to know, you should never provide additional information — such as your debit card PINs, your ACH or routing numbers, or your online banking log-in credentials — in response to an unsolicited letter.
If you’ve shared this kind of account information already, report this to your financial institution right away. You’ll likely need to open new accounts as soon as possible and to keep a close eye on your online banking or mobile app.
And, once again, when you suspect fraud, report it at consumerfinance.gov. You may also want to report the letter to the Better Business Bureau (BBB).
Do I really have a lot of home equity?
The “accessible funds” or “available funds” numbers you see in this type of letter are an estimate of the equity built up in your home. Theoretically, this equity could be cashed-out by refinancing.
Home equity is normally calculated by subtracting what you owe on your home loan from the property’s fair market value.
However, “The numbers you see on these letters are usually fake or teaser numbers meant to give you the impression there is a big pot of money waiting for you if you respond,” notes Ailion.
In fact, without talking directly to a lender, you can’t know exactly how much equity you are eligible to cash out, adds Moon.
The amount of money you can withdraw from your home equity depends on your loan balance, your credit score, and what type of mortgage you qualify for, among other factors.
A lender can only tell you how much equity you’re able to cash out after you fill out an application and the lender takes a look at your finances.
How to tap your home equity safely
If you’ve received a letter reporting available funds and you’d like to learn more, you should contact a few lenders of your own choosing.
You may actually have home equity you can access through a cash-out refinance.
And pursuing a cash-out refi isn’t the only way to tap your home’s equity. You might also consider a:
- Home equity loan — Often called a “second mortgage,” this type of loan uses your home for collateral and typically comes with a fixed interest rate that’s paid back over five to 15 years
- Home equity line of credit (HELOC) — Unlike a loan, this is a line of credit you can draw from when needed; it also uses your property as collateral. You can withdraw up to a preapproved spending limit over a set draw period (usually the first 10 years). The interest rate isn’t fixed — it’s a preset variable rate determined by current prime rates. You’ll only pay interest on the dollars you borrow, and you start to make minimum monthly repayments once you have a balance owed
These types of loans offer cash without requiring you to refinance your entire mortgage balance. They could be a better option for someone close to the end of their mortgage term, or someone who already has a very low interest rate.
“Talk with a trusted lender who can give you the best home equity financing options for your situation,” Moon recommends.
Other refinance options
Of course, it’s possible to refinance without taking any cash out.
Many homeowners refinance to lower their interest rate and monthly mortgage payments, which lowers the overall loan cost while leaving the home equity untouched.
“This is a good option for any borrower who can lower their interest rate, even if they haven’t built up much equity in their home,” notes Moon.
Homeowners with government-backed loans have an even simpler option. They may be able to use a Streamlined Refinance program, which offers faster approval and lenient requirements.
With a Streamlined Refinance loan, the lender typically doesn’t require a home appraisal, and it may not check your credit or income either.
Streamlined Refinancing options include:
In short, there are tons of different refinance options out there. So there’s a good chance the lender sending mailers isn’t your best bet.
If you think a refinance would be worthwhile, explore all your options and choose the one that makes the most financial sense for you.