be able to pay less interest, lower your monthly payment, or convert
from a 30-year loan to a 15-year loan (and build your equity faster!).
But be sure that refinancing is right for you.
There is nothing wrong with refinancing your home or getting a home
equity loan, you just need to be aware of the different deceptive
practices out there so you can protect yourself.
Do you own your home? If so, it's likely to be your greatest single
asset. Unfortunately, if you agree to a loan that's based on the equity
you have in your home, you may be putting your most valuable asset at
risk.
It is wise to think really hard about putting your home at risk. While
it is tempting to get the money to get out of debt, that debt will
eventually go away. If you put your home on the block, then you might
end up losing your home.
Homeowners-particularly elderly, minority and those with low incomes or
poor credit-should be careful when borrowing money based on their home
equity. Why? Certain abusive or exploitative lenders target these
borrowers, who unwittingly may be putting their home on the line.
There are many, many good companies out there who can work with you and
will explain what you are getting into and what the risks might be.
Unfortunately there are those, who would like nothing more than to get into your pocketbook.
Here are some things you can look for to avoid losing your home. These
things include equity stripping and loan flipping to out right lying by
hiding loan terms and extra charges.
Equity Stripping
You need money. You don't have much income coming in each month. You
have built up equity in your home. A lender tells you that you could
get a loan, even though you know your income is just not enough to keep
up with the monthly payments. The lender encourages you to "pad" your
income on your application form to help get the loan approved.
While it may seem a little paranoid, your house is at stake. Just be
aware that the lender may be out to steal the equity you have built up
in your home. If that is the case, he doesn't really care if you can
make the payments or not. He is ready to foreclose as soon as you
default and there goes your house and all your equity.
NOTE: An equity loan is an extra loan based upon the equity in your
house. When you take out this type of loan this is added to what you
already owe, therefore your monthly payment is larger and you have put
your house at risk. Any time, someone suggests you do something that is
not truthful, I would say Walk Away and Fast.
Hidden Loan Terms: The Balloon Payment
Here is the scenario: you've fallen behind in your mortgage payments
and may face foreclosure. Another lender offers to save you by
refinancing your mortgage and lowering your monthly payments. ALWAYS,
ALWAYS look carefully at the loan terms. One of the Hidden Loan Terms
might be what is called The Balloon Paymenty. This means that at the
end of a certain amount of time, 3 - 5 years, the full amount is due.
If you can't get financing for the full amount due then you will lose
everything and the lender can take your house away from you.
While the lower terms might appear attractive, just remember that in 3
- 5 years, while you might be financially where you want to be, you
could very well have hit on hard times and your credit score be so bad
that you couldn't get a loan if your life depended upon it. You might
be unemployed. If that is the case then you will lose everything you
had in your home.
I am extremely aware of how life can change and there is no reason, in
my view, to put yourself and your family in a bad position isn't worh
the risk. That is the reason I have always stayed away from ARMs
(Adjustable Rate Mortgages). My philosophy is: "If I can't afford it now, I will wait until I can afford it."
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