Avoid these harmful home equity practices
Most lenders exercise sound judgment and strong ethics in their dealings with borrowers, but there are exceptions.
When you’re thinking about a home equity loan or line of credit, it is especially important to avoid unscrupulous operators. The consequences – losing your home – are extreme.
The Federal Trade Commission has specifically called out the following deceptive or unfair practices.
The lender encourages you to refinance your loan repeatedly, even pressuring you to borrow more money than you need for the balance. Each time you refinance you pay additional fees and interest points, increasing your debt even further.
Bait and switch
The lender offers one set of loan terms when you apply, then pressures you to accept higher charges at closing.
The lender gives you a loan based on the equity in your home, not on your ability to repay. An ethical lender will take into account your capacity to repay the loan. It’s not fun to be turned down for a loan, or to be offered a smaller loan than you think you need, but it’s even less fun to lose your home because of an unscrupulous lender.
The 'Home Improvement' loan scam
A person claiming to be a contractor calls or knocks on your door and offers to install a new roof or remodel your kitchen at a price that sounds reasonable. You can’t afford it, but he tells you it’s no problem — he can arrange financing through a lender he knows. After the work begins, you are asked to sign a lot of papers. The papers may be blank, or the lender may rush you to sign before you have time to read what you’ve been given. After you’ve signed the papers you realize that you have signed a home equity loan with high rates and fees.
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