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Home Equity
Loans-What to Look
Out For
Fortunately most
lenders are pillars of their communities and can be trusted.
Unfortunately there are lenders who prey on the elderly, the poor,
and those in financial trouble with bad credit. These unscrupulous
lenders deliberately target weak borrowers with the hopes they get
further in trouble and end up losing their home for financial gain.
Everyone
should be made aware of some schemes used to exploit particularly
weak borrowers. Here are some examples.
Hidden
Balloon Payment
Nearly everyone
has seen the ads for a high dollar amount loan for a ridiculously
low monthly payment. What some lenders will do is forget to tell you
that the payments are interest only and at the end of the term of
the loan a huge balloon payment is due. If you can't refinance or
pay the loan off you may lose your home.
Flipping
Loans
This is the
practice of luring a borrower into repeated home equity loan
refinancing over a period of time. Each time the rate goes up and
points and other closing costs are rolled into the loan making the
net proceeds lower than expected and the payments higher than
expected.
"Home
Improvement" Loan
A contractor
offers to do some much needed work on your house but you tell him
you can't afford it. He offers to get financing thru a lender he has
done business with before. The work on the house starts. Then you
are asked to hurry and sign some papers for the loan. You realize
the loan is a home equity loan and the rate is very high so you
hesitate to sign. The contractor says he will not do any more work
unless you sign. The contractor already has a lien on your property.
Bait and
Switch Tactics
This is the
practice of getting to within a critical time of closing the home
equity loan and finding out the terms are different from those
agreed to. The unscrupulous lender is hoping that he has the
borrower in a position that he must accept the terms.
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