Home Equity Loan

Home Equity Loan - Stay Away From Scams

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 mortgage for months and is facing foreclosure and a lender offers you refinancing to rescue you from foreclosure, and lower the monthly payments; careful! Examine meticulously 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 can not 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 that you will pay extra or added interest points and fees, which only increase or adds up your debt or loan.

When for example you have had a mortgage for years, with low interest and monthly payments that are well suited to your budget, yet you are still seeking extra cash. A certain lender offers you refinancing, and uses the availability of extra money, declares that it's due time that the equity you built starts "working" well for you. You then decide to refinance. After a few payments, the lender then offers you a larger loan for a family vacation. You accepted the offer and the lender then refinances your original loan and gives you the additional cash.

4. Credit insurance packing. In this case, the lender will add credit insurance to your home equity loan that you do not necessarily need.

When for example you decided on a mortgage with terms that you believe you can afford. At closing, you are given papers that you should sign by the lender which includes credit insurance charges or other benefits that you did not request and 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 propose a set of loan terms at the time that you applied, then forces you to agree on higher rates when you are already signing to conclude the transaction.

6. Deceptive loan servicing. This occurs when the lender purposely fail to provide or give you detailed and exact 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 is your outstanding balance. With this, there is a possibility that you can pay more than what you owe using a home equity loan.