Home Equity Loan Scams

If you own a home then it is likely that this is your largest asset. The home equity loans on the market will indeed put this asset at risk. If you agree to a home equity loan you should be aware that you stand to lose this asset if you default on the loan. If you are low income or poor credit, elderly or in other similar situations you should approach a home equity loan with extreme caution. There are many exploitative lenders that target many persons that may without the proper knowledge put their homes at risk. There is much to look out for from unscrupulous lenders. Some of these include equity stripping, loan flipping and others such as hiding loan terms and extra charges.

Equity stripping is a process that targets the individual that needs money but does not have much income each month. These persons will have built up the equity in their homes but the income that they attain each month is too low to maintain monthly payments. The lender will encourage the padding of the loan application in terms of your income to get your loan approved and when you cannot make the payments will take your home. This is a ploy that we must be aware off and that we must avoid as we can lose our life’s work if we are not smart.

There is another situation. This one involves hidden loan terms and what is known as a balloon payment. The scenario is typically that you have lagged in your mortgage payments and are facing foreclosure. Someone will offer you a quick fix, they will refinance your mortgage and lower your monthly payments. But this is the catch; you have to look at the loan terms. The payments may be lower but this could be due to the fact that payments are only being made on the interest of the loan. At the end of the terms of the loan what will be required is the entire amount that you borrowed in a lump sum or balloon payment. This is the principal of the loan and if you cannot make the payment you are in the same situation again. You have to either refinance or face foreclosure and loss of your home.

Another scam to look out for is called loan flipping. This is where you have your mortgage for several years and the interest is low and the payments fit to your budget ideally. But the thing is you need some cash. A lender talks to you about refinancing and making some extra cash available to you. You may agree and sign on for this and then you will be further baited to refinance again. The lender is able to charge you high fees and interest each time and if there are prepayment penalties these will have to be dealt with as well. This will happen every time you refinance and you can be trapped in more debt for longer times. This is loan flipping and is easy to get caught with.

You should be cautious of all this and ensure that you are dealing with a reliable and dependable institution when you are thinking of refinancing or using your home equity for a loan or line of credit.