Beware of ‘Too Good to Be True’ Lenders

Unscrupulous loan peddlers are known as predatory lenders because of their uncanny resemblance to vultures. These loans encourage people to consolidate their debts and suggest this will prevent them from ever overspending and maxing out their credit cards again. Predatory lenders deal in asset-based lending: They make the loans based solely on the amount of equity a borrower has in a property rather than considering the borrower’s ability to repay the loan.

Deceptive marketing

Victims of predatory lending frequently describe being subjected to a flood of phone calls and letters from brokers and lenders, encouraging them to take out a home equity loan.

Red flag: Lenders who engage in high-pressure tactics, telemarketing, cold calling and deceptive advertising campaigns.

Excessive fees

Predatory lenders routinely charge borrowers fees totaling as much as 15% to 20% of the loan amount. Fees alone can have a ruinous impact on a homeowner’s equity. But add them to prepayment penalties and you’re locked into a high-rate, financially disastrous loan.

Red flag: You inquire about fees and charges, but you can’t get the facts. They insist there are no “upfront” fees.

Equity stripping

Equity stripping is particularly dangerous for people who find themselves in financial trouble. Scammers target people who are facing foreclosure or other financial hardships and make false promises of relief. Beware of anyone who pops up at what seems like the perfect time promising to let you cash in the equity you’ve built up without any consequences. Falling for this scam could end up with you losing your home and all of the equity you’ve accumulated.

Red flag: Any suggestion that you can qualify for a loan when you know the truth is you cannot reasonably make the payments.

Balloon payment

You’ve fallen behind in your mortgage payments. Another lender offers to save the day by refinancing your mortgage and lowering your monthly payments. But beware. The payments may be lower because the lender is offering a loan on which you repay only the interest each month.

Red flag: Unrealistically low payments.

Loan churning

Senior homeowners who are asset-rich but cash-poor are prime targets for this scam. A mortgage company contacts you offering to refinance your loan and throw in some extra cash along with it. The problem is, each time you refinance, the fees and interest rates are going up.

Red flag: Lenders that contact you and any suggestion that a loan is the way to get your equity to start “working” for you.

December 9, 2022.Florida Realtors. Beware of ‘Too Good to Be True’ Lenders.

Retrieved from: https://www.floridarealtors.org/news-media/news-articles/2022/12/beware-too-good-be-true-lenders

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