When Not To Agree To A Home Equity Loan
Before you borrow money on your home's equity, think twice so
you don't end up paying more than you expected.
According to the Federal Trade Commission,
homeowners-particularly elderly, minority and those with low
incomes or poor credit should be careful when borrowing money
based on their home equity. Certain abusive or exploitative
lenders target these borrowers, who unwittingly may be putting
their home on the line. Abusive lending practices range from
equity stripping and loan flipping to hiding loan terms and
packing a loan with extra charges.
When not to agree to a home equity loan:
- If you don't have enough income to make the monthly
- If the loan terms are incredibly unfavorable to you, with
enormous up-front costs and high interest rates (sometimes
exceeding 50 percent).
- If there are discrepancies between the promised or stated
interest rate and the annual percentage rate (APR) figure
required in all consumer loan contracts (Truth in Lending). If
that figure is significantly higher than the rate stated in the
contract, the loan contains hidden interest charges.
- If you can't determine who the lender is. A lender could be
nothing more than a few individuals in for a quick score. Does
the agent have an office? Is the company an old and established
one with community ties?
- If you haven't read or if you don't understand the loan
terms or you're being pressured into signing the loan
- If the loan includes extra products you don't want.
What to do before you Agree to a home equity loan:
Have a financial adviser such as an attorney or accountant
review all papers before signing anything. Paperwork for a loan
contract is often technical and unclear. Read all items
carefully. If you need an explanation of any terms or conditions,
talk to someone you can trust, such as a knowledgeable family
member or an attorney. Keep careful records of what you've paid,
including billing statements and cancelled checks. Consider all
the costs of financing before you agree to a loan.
Copyright © 2005. Chileshe Mwape writes for the
News Website at: http://www.banking-news.org.uk/
which offers informative articles about banking, mortgages and
This article may be reprinted as long as all the above links
are active and clickable.
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