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If you own a home, it is, undoubtedly, supposed to be your greatest single asset. However, if you take a home equity loan that´s based on the equity you have in your home, maybe you are putting your most prized asset at risk. Particularly, elderly homeowners, minority and people with low income or credit problems should be cautious while borrowing money based on equity, as certain abusive or exploitative lenders lending money on home equity usually target these borrowers, who may be putting their home on mortgage unwittingly.
Abusive lending practices range from equity stripping and loan flipping to hiding loan terms and packing a loan with extra charges.
Home Equity Stripping
Many people are looking for more income to meet their rising expenditure, which is, of course, beyond their budget. Fortunately, you have built up equity in your home. A lender suggests you to take an equity loan. Equity is the difference between the amount of loan you owe on the home and the amount you can get from selling the home. Be cautious, maybe this lender wants to take the equity you have built up in your home.
Further, the lender may suggest you to present fabricated enhanced income in your loan application form to get the loan approved. Suppose you get the home equity loan and you don´t have enough income to make the monthly payments, you will be in the soup. As you fall back on monthly payments, the lender will foreclose your mortgage, which, of course, your home, and strip you of the equity in your home.
Loan Flipping Another Way To Deceive You
This is another sort of home equity loan scam, where a lender persuades you to refinance your loan repeatedly and borrow more money. Suppose you've had mortgage of home for years. At present, the interest rate is low and the monthly payments suit nicely to your budget, a lender tells you about refinancing, using the availability of extra cash as bait, and claims it's time the equity in your home started ¨working¨ for you. You agree to refinance your loan. Further, when you've made a few payments on the loan, the lender again comes up with the offer of a bigger loan. If you accept the offer, the lender refinances your original loan and then lends you additional money.
The practice commonly referred as flipping"- where the lender charges you high points and fees each time you get refinance, and may increase your interest rate as well. Consequently, with each refinancing, you´ve increased your debt burden, and may be unable to make monthly payments, probably you could lose your home.
Credit Insurance Packing
Often, predatory lenders ¨pack¨ charges for credit life insurance, regular life insurance and other added ¨services¨ into the new mortgage. The lender may tell you that this insurance comes with the loan, and doesn´t explain exactly how much extra money this will cost you each month. If you agree to buy the insurance, actually you will be paying extra for the loan by buying a product you may not need.
Watch out?
BORROWERS, BE WATCHFUL! Never agree to a home equity loan if you don´t have enough income to make the monthly payments. Also be careful before signing any document. Watch out before agreeing to a loan that includes credit insurance or extra products you don´t want
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