Shady Home Equity Loan Practices to Watch Out For There are various practices that some unscrupulous lenders could pull on you when you take out a home equity loan or a HELOC. If you’re not careful, you might end up paying more or worse, losing your home. Those who fall prey to these practices are usually the elderly who might not like to read the fine print and those who have credit problems and need money badly. You should always be wary of these shady practices as these violate federal laws on credit, debt collection, and discrimination based on age, gender, marital status, race, and national origin. If you see or smell something similar to the ones below, run! One of the most common practices is the bait and switch. The lender gives you a set of loan terms that seems very reasonable when you’re still shopping for a loan. But when the time comes to sign the contract, you are given another contract that stipulates higher charges. Don’t make the mistake of confusing and just signing the contract. Be firm that you want to sign on what you had earlier agreed on. Be sure to read the contract very carefully and note if there are additional charges for credit insurance and other insurance products to your loan. This is called insurance packing, where the lender puts in additional insurance that you don’t need into your home equity loan which can increase the amount you have to pay. Together with these unnecessary products, you might also want to check out for other fees that are not legal that are inserted into your loan. These are mortgage servicing abuses where you ultimately lose out. We’ve discussed this briefly above but always be wary when you’re offered nontraditional loan products such as allowing you to pay the minimum payments that do not even cover the principal and interest due for a certain honeymoon period. Then when the time is up, you are faced with a balloon payment that you can’t anymore afford. Remember, failure to pay your home equity loan also means losing your home so you should not be slack when reviewing your repayment terms. Finally, never sign blank papers or documents no matter who gives it to you. There have been cases where a contractor offers to improve a certain part of a home at a very affordable price. He says he can also arrange financing thru a lender if the homeowner can’t afford it. Sometime during the remodeling, the contractor hands a bunch of papers for the homeowners to sign, often threatening them that the work will not be finished without it. The end result is that the homeowners signed blank
documents or documents which they were unable to read properly and to their dismay only later realized that they were being saddled with a very hefty home equity loan with outrageous terms. A home equity loan or HELOC can help you get through rough times. But before you get it, you should strive to get the best deal and avoid scams that can make you lose your home.
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Published on Jan 24, 2014