Home Equity Scams

Unfortunately, when it comes to home equity loans and lines of credit there are many lenders who are only looking to separate you from your money. Some of these predatory lenders target the elderly or other people who have low incomes or credit issues. They try to take advantage of them by using shady business practices that have captured the attention of the FTC and other consumer protection agencies.

Some of the home-equity scams that you want to avoid are:

Loan Flipping — this occurs when your lender goes out of his way to get you to continuously refinance your loan and also to try and borrow more money against your house. By doing this you pay fees each time and likely have to pay interest points on the refinance loan that you receive. All this does is increase the amount of debt that you owe.

Insurance packing — this is when you go to get a home-equity loan or line of credit and the lender tax on several insurance policies, many of which you don’t need.

Term switching — also known as bait and switch, this is when you are offered certain loan terms when you apply for a home-equity or line of credit and then during the transaction process you are pressured into higher interest rates and higher fees at the time of signing.

Equity stripping– this is when your lender gives you a loan based on the equity that exist in your home but does not take into account the ability to repay the loan. This can put you in a large loan with monthly payments that are very high. If this happens to you, the risk of losing your home goes up considerably.

Exotic products — these are loans were the minimum payments that you get actually do not cover the principal balance and interest that is due. Over time your loan balance your monthly payments increase substantially and because many of these loans have variable rates, a monthly payment can quickly get out of control.

Loan servicing scams — this is when you’re home-equity lender does not give you complete or accurate account statements so that you never know how much of your loan has been paid off and how much is still due. It is very easy to underpay your loan under these circumstances as well as pay more than you owe.

You can avoid most of the situations by using established, reputable lenders -many of which are easy to find online- and make it very clear that they do not participate in or condone such practices.