updated
May 25, 2004
Home
Loans - Avoid High-Cost Loans
Avoid
being a victim of increased loan costs when considering a
home equity loan. Predatory lenders may use a variety of practices
to lure unsuspecting home owners and buyers into accepting
with high interest rates, high closing costs, severe prepayment
penalties, balloon payments and other adverse conditions.
Be
cautious when searching for any loan in which the home will
be used as collateral. Don't be persuaded by high-pressure
tactics. Take the time to consider many loan offers. Start
at a personal banking institution or where the current mortgage
is and compare the rates and terms for two or three other
lenders.
The lender should answer all questions directly and completely.
Be wary if the lender suggests falsifying information on the
application form, wants signatures on blank forms, does not
give copies of signed forms or promises one set of loan terms
and then switches when the loan is about to be closed.
A
few lenders may use high-pressure tactics to increase the
amount of the loan and the frequency of loans in order to
increase their own incomes. Borrow only what is needed and
refinance only for important purposes like home repairs or
medical bills.
Some
lenders provide short-term loans that require the payment
of additional fees when the loan must be renewed. These loans
often have low payments because only interest is covered.
If interest-only payments are the only payments being made,
the lump sum payment required at the end of the lending term
could be at least as large as the amount originally borrowed.
Lenders
are required to provide a Truth-In-Lending Disclosure form
which lists all the costs associated with the loan. This form
should be provided within three business days of the loan
application. Most loans have some front end or closing costs,
but for predatory lenders front end or closing costs can amount
to a substantial amount, often 10 percent to 25 percent of
the amount borrowed.
If the situation does not feel comfortable, look somewhere
else for the loan. Searching for a loan may require a small
amount of money and time, but in the long run thousands of
dollars could be saved and the loss of a home could be prevented.
# # # SOURCES: Shirley Niemeyer, Ph.D., housing and environment
specialist John Merrill, housing specialist, University of
Nebraska Cooperative Extension
