Most lenders in the equity loan market place are legitimate lenders. However, a few lenders are taking the less fortunate for a ride.
These unscrupulus lenders often offer appealing loans, but they fail to inform the borrower about hidden charges or "balloon" charges. Hidden interest charges are often stripped from loans, since the APR is a supposed security to the borrower that weeds out hidden fees. "Equity Stripping" is one of the leading scams on the loan market place.
Lenders engaged in "equity stripping" will often
present borrowers with "too good to be true" deals, leading them to
believe that they are saving money. And once the borrower agrees to
the contract, the lender will apply new charges, high interest, and other
fees that puts weight on the borrower, until he or she breaks and fails
to make payments on the mortgage.
The lender then repossesses the home, selling the house
for a profit while the borrower is standing on the corner, wondering
where he will live next. Consequently the U.S. Federal Government
has provided information to help borrowers avoid losing.
Since equity stripping is becoming a huge industry, the
Fed’s advises homeowners to watch out for equity stripping, including
paying attention to lenders that are offering loans that reach above your
The Fed also advises borrowers to stay alert to "loan flipping", which is a process of switching loans regularly and requesting larger amounts of cash on each refinance applied.
If a lender is pressuring you to sign an agreement, you
will need to find another lender, since pressuring borrowers is a
sure-fire tip that the lender is out to take you for a ride.
You will also want to consider PMI (Personal Mortgage
Insurance), which is a requirement. However, few lenders attempt to
charge for additional coverage that is not needed. Thus, homeowners,
especially the less fortunate, should adhere to advice and very carefully
read details of any loan offered.
Now go on to the next step in your home equity loan guide which focuses on ISA equity loans.