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You could lose your home and your money if you borrow from unscrupulous
lenders who offer you a high-cost loan based on the equity you have in
your home. Certain lenders target homeowners who are elderly or who have
low incomes or credit problems—and then try to take advantage of them by
using deceptive practices. The Federal Trade Commission cautions all
homeowners to be on the lookout for:
Equity Stripping
The lender gives you a loan, based on the equity in your home, not on
your ability to repay based on your income. If you can’t make the
payments, you could end up losing your home.
Loan Flipping
The lender encourages you to repeatedly refinance the loan and often, to
borrow more money. Each time you refinance, you pay additional fees and
interest points. That only serves to increase your debt.
Credit Insurance Packing
The lender adds credit insurance to your loan, which you may not need.
Bait and Switch
The lender offers one set of loan terms when you apply, then pressures
you to accept higher charges when you sign to complete the transaction.
Deceptive Loan Servicing
The lender doesn’t provide you with accurate or complete account
statements and payoff figures. That makes it almost impossible for you
to determine how much you have paid or how much you owe. You may pay
more than you owe.
Some of these practices violate federal credit laws dealing with
disclosures about loan terms, discrimination based on age, gender,
marital status, race, or national origin; and debt collection.
You also may have additional rights under state law that would allow you
to bring a law suit.
The FTC suggests if you’re thinking about using your home as collateral
for a loan, be careful. Unless you can make the loan payments out of
current income, you could lose your home as well as the equity you’ve
already built up. Some additional tips to remember:
The lure of extra money or the chance to reduce monthly credit payments
can be very costly in the long run. High interest rates and other credit
costs could get you in over your head.
Credit insurance may not be a good deal from a lender. If you want the
added security of credit insurance, shop around.
Don’t sign a loan agreement if the terms are not what you were given
when you applied.
Ask for an explanation of any dollar amount, term, or condition that you
don’t understand. Federal law is very clear about what credit and loan
term information must be provided in writing when you apply for a loan
and before you sign any agreement.
In addition, shop around for the best loan terms and interest rates.
Contact lending institutions, such as banks and credit unions, and
consult a legal or financial advisor, or someone you can trust before
you make any loan decisions. Or contact your local Fair Housing Office,
legal aid, or senior services organization for information and help.
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