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Home Loan & Home Mortgage Article Series
Home Equity Loans: How To Spot a Scam
A home equity loan permits one to borrow a
certain amount of money, using the equity of your home as collateral.
Homeowners, mostly the elderly, and people with low incomes
or with poor credit must be very careful and wary when borrowing
or having a loan based on their home equity. This is because
there are some lenders who target these borrowers and exploit
those who innocently may be placing their house at great risk.
Avoid
These Signs of Scams When Considering A Home Equity Loan:
1.
Equity stripping. You have already built up equity, but
you are still in need of additional money because you don’t
have enough income. Home equity loan lenders will tell you
that you can obtain a low rate even if you know very well that
your income will not be enough to sustain the monthly dues
and urges you to “pad” your earnings on the application to
aid in the approval of your loan.
Careful! This home equity loan lender has the possibility
of stealing the equity that you have built up. This particular
lender really does not care whether you can keep paying each
month or not, because at the time that you can not, this lender
will just foreclose your home, taking away the equity that
took you years to build.
2.
Balloon payment (hidden terms) with home equity loans. When
you have been unable to pay your mortgage for months and are
facing foreclosure and a lender offers you refinancing
to rescue
you from foreclosure with lower the monthly payments; be careful!
Meticulously examine the terms of the loan. Your monthly payments
can be lowered, as the lender is offering that you pay back
only the interest. The principal amount however is payable
in lump sum, also known as balloon payment. You will be facing
foreclosure if you cannot pay the principal with this type
of home equity loan.
3.
Loan Flipping. This is when the lender inspires
you to repetitively refinance your loan and to borrow more
and more
money. Be aware that every time you consider refinancing
you will pay extra or added interest points and fees - which
only increases your debt or loan.
For
example: you have had a mortgage for years with low
interest and monthly payments well
suited to your
budget, yet you still need extra cash. A certain lender
offers you refinancing plus the availability of extra
money and declares that it's due time that the equity you built
starts "working" well for you. You decide to
refinance. After a few payments, the lender then offers you
an even larger loan for a family vacation. You accept the offer
and the lender then refinances your original loan and gives
you the more cash. See where this is leading?
4.
Credit insurance packing. In this case, the lender
will add credit insurance to your home equity loan that
you don't
necessarily need.
For
example: you decided on a mortgage with
terms that you
believe you can afford. At closing, you are given papers
by the lender that you should sign which includes
credit insurance charges or other benefits that you did not
request
& you
do not need. When you notice this, do not hesitate to ask and
let the lender explain to you clearly how much extra cost you
will be paying and what happens if you choose not to include
these extra benefits on your home equity loan.
5.
Bait and switch. This happens when a lender proposes
a set of loan terms at the time you applied, then
forces you
to agree on higher rates when you are ready to sign and conclude
the transaction.
6.
Deceptive loan servicing. This occurs when the
lender purposely fails to provide or give you detailed
statements of
accounts and payoff data. This makes it nearly impossible for
you to determine or calculate how much you already have paid
and how much your outstanding balance is. Here, there
is a possibility that you can pay more than what you owe using
a home equity loan.
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SolveYourProblem.com : 2007
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