Scams And Home Equity Loans
You must be thinking the same thing I was when I heard about this. How can someone possibly scam you with a home equity loan? Are you not protected by the government or some other organization to get these people to be “real” with you? One would think it’s hard to pull these scams off, but in this fast paced world we want things done quickly with the least possible amount of work with the most pay off.
The home is, arguably, the biggest asset you can possess and this makes the home equity loan conmen’s mouths collectively water at the prospects of turning it to their favor. If you’re a minority, elderly or have poor credit you’re a potential target. The federal trade commission (FTC) wants everyone to be knowledgeable about these underhanded practices so you can protect yourself.
I’m sure we’ve all heard a lender tell us to pad our income numbers. You know what I mean. You write down your income as more than what it is to help nudge you along to a better shot at getting a home equity loan. Lenders will encourage you to do this because they don’t care if payments aren’t made. You have money built up in your home and if you can’t meet the payment they foreclose and take it, selling it for profit. This is known as “equity stripping”.
So your equity mortgage loan is a bit high. You’re falling behind and don’t see yourself being able to pull yourself out of the hole. You look around for solutions and a lender offers you another loan to refinance your current property. You pay off the old loan and begin a new one, saving yourself. All you’ve done is saved yourself from lender #1 while lender #2 lurks in the bushes waiting for the dreaded “balloon payment.” This is the reason why your loan payment is lower than before. When the principle term of your loan is up you may have a balloon payment due. This is the total amount you financed, due in one lump sum. If you can’t pay it or can’t refinance then you face losing your home.
One of the most widely used scams is the “make the equity in your home work for you” scam. Your payments are nice and manageable, your rates are low but you would like a few extra bucks to have fun with so they prey on your good fortune. This home equity loan gets you some extra cash and after a few months they call to offer another loan under the guise of a “home improvement”, “vacation” or “new car”. You bite and you get another loan refinanced. Eventually your payments grow, your fees are higher and your manageable payments become too much and you fold.
There are several other scams involving home equity loans, but these are the top three instances. The worst part here is that they are perfectly legal. Is it moral? Not even close. Read everything. Don’t go to over the phone lenders for things you don’t need. You’ll be better off in the long run taking the high road.