Predatory Lending: Buyer Beware

By Debbie Wilson
LoanPage.com Columnist

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Finding the best mortgage, or refinancing your current mortgage, is really no different than many other big purchases you make in life. And being a smart shopper can make all the difference in the world between obtaining the right loan or falling into the hands of predatory lending.

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Predatory Lending Pitfalls

Predatory lending can take on a number of classic deals and scams. But, before you refinance your mortgage, consider some of the more common predatory lending pitfalls.
  • » Bait-and-Switch -- This is where the lender promises you one type of loan, then presents another one (usually at a higher interest rate) upon closing.
  • » Loan Flipping -- A lender refinances your loan more than once, causing you extra money in points and fees.
  • » Hidden Balloon Payments -- What starts out as a low-interest mortgage becomes due in full in a few years, causing you to refinance once again.
  • » Equity Stripping -- A lender offers you a loan based on your home's equity, rather than if you can actually make the monthly payment.
  • » Pre-Payment Penalties -- If you decide to pay your loan off early, this pitfall requires you to pay extra fees and penalties.
  • » Piggy Back Loans -- Be aware of additional loans offered or added to your refinanced mortgage at the time of closing.
Ultimately, when comparing loans, ask questions prior to refinancing. Don't let anyone pressure you into making a mortgage deal you don't understand or feel uncomfortable with. And when you do decide to refinance your mortgage, know that you also have additional rights (Rescission Rights) whereby you can cancel the loan within three days after closing if you change your mind. By doing your mortgage homework, you'll avoid those predatory lending pitfalls and end up with a refinanced loan that fits your budget and lifestyle.

Sources:
California Department of Financial Institutions
www.equifax.com
Federal Fair Credit Reporting Act

About the Author
Debbie Wilson owns and operates a lakeside resort. Her previous experience includes profitability consulting for a national healthcare company. Debbie holds a B.A. in Business Management with a minor in Physical Education.

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