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If you own a home, it is probably the greatest single assest that you possess. If you borrow money and put this home up as collateral, you are putting your single greatest asset on the line and it could end in foreclosure.
A lot of elderly people on limited and fixed incomes, people in the low income bracket, and those with bad credit should be especially careful and cautious when considering a home equity line of credit or loan. A lot of these people have been targets of exploitative lenders and are unaware that they are being taken advantage of. There are a lot of ways that these lenders can take advantage of those lacking knowledge or naive.
Listed below are some of the practices that anyone has to look out for when considering a loan that uses your home as collateral:
Hidden Loan Terms
The balloon payment is sometimes used to deceive the borrower into thinking that he is getting a reduction in his house payment because for some reason he needs the extra money or is having trouble making his normal house payment. A person is the most vulnerable when he/she has fallen behind in their house payment. This balloon payment is usually tacked on at the end of the loan term and the borrower is not always completely aware that it is there. You could be paying mostly interest with your regular payments and most of the principal comes due as a balloon payment at the end of the loan term. If you cannot make this final large payment, you stand at risk of losing your home even though you have paid all of this interest.
Equity Stripping
For some reason, you are having trouble making your monthly bills and are short on cash. In short, you need money. You have built up equity in your home and a lender convinces you to take out a loan by using your home as collateral. At this point, the lender does not care whether you can make the monthly payments or not. He is out to steal the equity that you have built up and forecloses on your home. Be certain that if you mortgage your home you can afford to keep up the payments and also pay your other bills.
Elderly people on a fixed income are some of the best targets for this kind of scheme. If they own their own home, they usually have a considerable amount of equity built up and their fixed income does not increase with the cost of living thus sometimes placing a harder burden on them to pay their bills.
Loan Flipping
This is a practice that some unscrupulous lenders use to strip you of money by convincing you to refinace your home more than one time charging you additional fees and sometimes higher interest rates each time. If you have equity built up in your home but need money for something else, the lender arranges a loan for you with a decent interest rate. Sometimes your are even solicited to take out a loan to "put your equity to work for you" and give you some extra cash. Once you have made several payments on the loan, the lender calls or contacts you to take out an even bigger loan. If you accept this larger loan, you are usually charged higher points, increased interest rate, and higher closing costs. The original loan may have had an prepayment penalty which you will have to pay along with the refinancing.
You may now have extra money but you also have a lot more debt. Each time that you have refinanced, you have increased your debt. You have probably not gained any value whatsoever but in reality have lost a lot of money. Your payments have probably increased and your may now be in danger of losing your home.
Home Improvement Loan Scam.
You may be looking at some home improvements or may be solicited by a contractor offering to do some home improvements for you. Whichever the case, always be aware of the contractor scam. You will be persuaded that the work will be good and reasonably priced. He even assures you that he can get the financing for you through a lender that he does business with. Once you agree and the contractor begins work, you will be approached to sign some papers for the loan. The papers may even be blank are you can be rushed and not given time to read the papers completely. If you do not sign, the contractor refuses to complete the work on your home You sign only to find out that the loan was a home equity loan with high points, high interest rate, and high fees. The contractor can then complete or not complete the work with little concern whether you are satisfied or not. He already has his money from the lender.
Unwanted Credit Insurance Costs
You have agreed to a mortgage with terms that you are comfortable with and can afford the monthly payments. At the closing, you are asked to sign papers agreeing to purchase credit insurance and other benefits that you have not asked for or do not desire to have. The lender either hopes that you don't notice these extra monthly charges or tries to encourage you to sign by telling that the papers will have to be rewritten and this can take a long time. You may even be cautioned that you may not get the loan approved the second time around. If you do agree, you are being forced to pay for something that you do not want or need.
Mortgage Service Abuses
After you get a mortgage, look out for these abuses from your lender.
(1) You are notified by the lender that your payments are higher than agreed upon due to the inclusion of escrow for insurance and taxes. You have agreed to pay these yourself with the approval of the lender.
(2) You are notified by the lender that you are being charged late fees even though you know that your payment was on time.
(3) You are notified by the lender that you have not maintained adequate insurance on the property and that they will take care of this and add the addition money to the payments.
(4) You may be charged other unexplained fees that you do not understand or were not expecting. These could legal fees, etc. The lender may not be giving you an accurate account at all of these unexpected fees. Your are sometimes left with inaccurate or incomplete information. You may end up paying more than you expected in the beginning.
Signing Over Your Deed to Someone Else
If you get into trouble and are having a hard time paying your mortgage, you are faced or threatened with foreclosure, do not sign over your mortgage to another lender. You may be contacted by a lender with the promise of finding you new financing if you will sign overyour deed to him. He will try to convince you that this is a temporary measure and will it keep you from going into foreclosure.
You will not go into foreclosure but you will lose your house to the so-called lender. He is able to do what he wants with your house even rent it back to you for payments once the deed is signed over to him.
If You Are Considering A Home Equity Loan
If you are considering a home equity loan, just be sure that this is really what you want to do and that you can afford to make the monthly payments. Shop around to find what you consider the best deal for you. Check on the reputation of the lender. Remember, you could be at risk of losing your home.
Do not agree to or sign anything that you do not understand. If there are blanks left on the forms, do not sign until you understand completely what they are and why they are there. Ask up front what the total monthly payments are including all insurance, closing costs, points, etc. Be extremely sure that you know about all of the terms including any balloon payments that may exist. Do not let anyone force you to do or sign anything against your will or better judgment.
Keep a running total of any money that is paid out and question any costs that you are not sure of or consider inaccurate or not above board. If you are having improvements made on your home and are paying with a loan, check on the contractors reputation and ask to see some of his work or talk to some of his know clients.
There are also some reputable consultants that can assist you with loans and financial matters. If you feel that your are being cheated, seek legal help.
Charles Oxford 11/20/06 GetawayCrafts
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