Suppose you’re carrying a $340,000 balance at 7.1% and a loan officer quotes you 5.9%. Run that math and you’re looking at roughly $280 a month in savings, real money over a five-year hold. But that savings estimate only holds up if the loan behind it is clean. Predatory terms, junk fees, a prepayment penalty, a rate that quietly drifts on the Loan Estimate, can eat years of that savings before you even notice. Duane Buziak, NMLS #1110647, has reviewed enough refinance files to know the warning signs repeat themselves, and most of them take less than ten minutes to check. Here are seven specific things to verify before you sign anything.
1. Line Up the Loan Estimate Against the Original Quote
Under TILA/RESPA rules enforced by the Consumer Financial Protection Bureau, lenders must deliver a standardized Loan Estimate within three business days of application. That document is your first real chance to see whether the number you were quoted on the phone survives contact with paper.
Say a borrower is quoted 5.9% verbally, gets excited, and then opens a Loan Estimate showing an APR of 6.4% once origination charges and discount points are folded in. That 0.5-point gap between the advertised rate and the actual APR is the tell. Fees that weren’t mentioned on the call just showed up in writing.
To check this yourself: request the Loan Estimate in writing and don’t let anyone talk you into skipping it. Place it side by side with whatever rate was advertised or quoted verbally. Check three lines specifically: the APR, the monthly payment, and cash-to-close. The note rate is what gets advertised; the APR is what actually reflects the cost of the loan once fees are baked in.
The common mistake is fixating on the headline rate and never looking at where the APR lands. A lender can advertise an attractive note rate and still bury enough in fees that the effective cost is meaningfully higher. Measure the spread between the quoted rate and the Loan Estimate APR. Anything beyond a few tenths of a point apart is worth a direct question before you move forward.
2. Read the Prepayment Penalty Clause Before You Sign
Most conforming refinances written today don’t carry prepayment penalties, but “most” isn’t “all,” and the products that do carry them tend to show up in non-QM and some non-conforming spaces. The clause is legal and disclosed, but it only protects you if you actually read it before closing day.
Consider a homeowner who plans to sell within two years for a job relocation. They refinance into what looks like a straightforward rate-and-term deal, only to discover after the fact that the product carries a 2-year prepayment penalty. Selling on schedule now costs thousands of dollars they never budgeted for.
Confirm this directly: ask your loan officer, in plain language, whether the loan includes a prepayment penalty. Then verify that answer against the loan terms section of the Closing Disclosure before your closing appointment, not during it. Don’t rely on memory of a phone conversation weeks earlier.
The mistake here is assuming all modern refinances are penalty-free because conforming loans usually are. That assumption doesn’t hold for every product a lender might offer, especially if your file doesn’t fit a standard conforming box. What you’re measuring is binary: the clause is either present on the Closing Disclosure or it isn’t. There’s no gray area to interpret.
3. Recognize Loan Flipping and Repeated Refinance Pressure
The Department of Housing and Urban Development and the CFPB both describe loan flipping, sometimes called churning, as a recognized predatory pattern: a lender repeatedly refinances the same borrower mainly to collect fresh origination fees, not because the borrower’s terms meaningfully improve.
For example, imagine a homeowner refinanced twice within 18 months by the same lender. Each transaction reset the loan term back to 30 years and charged new closing costs, but the rate barely moved between the two deals. The homeowner paid twice for a benefit they got once, if at all.
Protect yourself with a simple sequence:
- Before refinancing again, ask for a written break-even calculation: total closing costs divided by monthly savings.
- Confirm the new rate is meaningfully lower than your current rate, not just a token improvement.
- Compare the new loan term against how many years you’ve already paid down on the current one.
- Walk away from any pitch that pressures you to sign quickly without time to run these numbers yourself.
The common mistake is refinancing again just because rates ticked down slightly, without checking whether new closing costs erase that gain. What you’re measuring is the break-even month against how long you actually plan to keep the loan. If break-even lands past your expected hold period, the refinance likely isn’t worth doing yet.
4. Question Cash-Out Offers That Ignore Ability to Repay
Equity stripping happens when a lender extends a cash-out refinance without properly verifying that the borrower can actually repay it, extracting fees and equity while leaving the homeowner with an unsustainable payment. VA cash-out refinances max out at 100% loan-to-value, and conventional cash-out refinances cap at 90% LTV. Any offer that quietly exceeds those limits, or skips real verification to get there, deserves scrutiny.
Picture a retiree offered a cash-out refinance based on stated income alone, no pay stubs, no verification, that pushes the new monthly payment above half of their documented income. Nobody checked whether that payment was sustainable before the offer went out.
Before accepting a cash-out offer, confirm the lender is actually verifying income, assets, and debt-to-income ratio, not just taking your word for it. Check that the requested LTV stays within the standard caps for your loan type. And resist taking more cash than you actually need simply because a bigger number was offered.
The mistake to avoid is accepting the largest cash-out amount available without asking whether the resulting payment fits your budget. What matters here is your resulting debt-to-income ratio and how much equity remains in the home after the cash-out closes. A refinance that strips most of your equity for a payment you can barely carry isn’t a win, even if the check clears.
5. Compare Closing Costs Against Typical State Ranges
Fee stacking is one of the easier predatory patterns to catch because it hides in plain sight on the Loan Estimate. Virginia refinance closing costs typically fall within a predictable range for a given loan size, and duplicate or inflated fee lines stand out once you know to look for them.
As an illustration, imagine a Virginia refinance quote listing a $600 “document preparation” fee stacked on top of a separate $450 processing fee, both covering the same paperwork. That’s $1,050 for one task billed twice under different names.
Ask for a line-item explanation of every charge in the origination charges section of the Loan Estimate. If two fees appear to cover the same service, ask directly why both are necessary. A legitimate lender can explain every line without hesitation.
The mistake most borrowers make is looking only at the total cash-to-close figure and skipping the line-by-line review. A single bottom-line number hides duplication easily. What you should measure is total lender and origination fees as a percentage of your loan amount, compared against typical ranges for similar refinances in Virginia or your licensed state. If your total looks meaningfully higher than that range, ask why before you sign.
6. Verify the Lender’s and Loan Officer’s NMLS Standing
Every licensed mortgage originator carries an NMLS number, and the NMLS Consumer Access database lets you confirm active licensing in your state for free, in under a minute. This is the fastest fraud check available to you, and it’s free.
Consider a homeowner who gets an unsolicited call promising a refinance approval, but the caller can’t produce an NMLS number when asked and has no licensing record in the homeowner’s state. That alone should end the conversation.
Search the loan officer’s name or NMLS number on the NMLS Consumer Access site and confirm both active status and state authorization before you share any personal financial information, including your Social Security number or income details.
The common mistake is trusting a caller’s claimed credentials at face value instead of independently checking the public record. Anyone can claim to be licensed on a phone call. What you’re measuring is a simple pass-or-fail check: confirmed active NMLS license status in the state where the property sits. No license, no conversation.
7. Spot Balloon Payments and Negative Amortization Disguised as Low Rates
A monthly payment that looks unusually low compared to everything else you’ve seen usually means one of two things: either the loan structure is genuinely favorable, or the low payment is hiding a rising balance or a lump-sum payment due down the road. The only way to know which is happening is to check the amortization schedule.
For example, a refinance advertised at a surprisingly low monthly payment turns out to have a balloon payment due in year seven, requiring the borrower to either refinance again or sell the home to cover it. The low payment wasn’t a gift; it was a deferral.
Review the amortization schedule that comes with your Closing Disclosure and check two things: does the principal balance decrease every single month, and is there a large payment due before the stated loan term actually ends. Negative amortization shows up as a balance that grows instead of shrinks, even while you’re making payments on time.
The mistake to avoid is choosing a loan based purely on the lowest advertised monthly payment without checking how the principal behaves over the life of the loan. What to measure: the monthly principal balance trend across the full amortization schedule, and whether a balloon payment date exists anywhere in the term. Either red flag is reason enough to walk away from that particular offer.
Start With the Five-Minute Checks
If you only have time for two of these before a closing date creeps up, start with matching your Loan Estimate against the original quote and pulling up NMLS Consumer Access on the loan officer. Both take about five minutes combined, and between them they catch the majority of predatory setups before you’ve committed to anything. The other five items matter, but they matter most once you already have a clean baseline quote to measure everything else against.
That’s exactly what Duane Buziak’s soft-pull pre-qualification is built for: a real, no-credit-impact quote you can hold up against whatever else lands in your inbox or your voicemail, without the risk of a hard inquiry hitting your credit report just to compare numbers. Call (804) 212-8663 now for your free soft-pull rate analysis, no credit impact, no obligation, and find out whether refinancing can actually lower your payment or put your equity to work on terms that hold up to this exact checklist.