Consumer Publications List
Equity Loans: Beware of Predatory Lending
An older woman's
home was paid off when a salesman talked her into a 12% home equity loan to pay
off credit cards. He said she could reduce her monthly payments from $500 to
$350. He didn't tell her about the large "balloon" payment that was due in three
years. She lost her home to foreclosure.
knew her credit rating wasn't the best, but she needed to pay medical bills. She
thought the 16% home equity loan offered by "the helpful man who called on the
phone" was the best she could get. She could have gotten a better rate by
borrowing money? Because of the risks involved, think twice before accepting
offers to use the equity in your home to secure the loan.
Many elderly, low-
or moderate-income, and minority homeowners have been hurt by "predatory
lenders." These aggressive, dishonest lenders advertise their services to people
in financial need–people who may have fallen behind on property taxes, need
money for medical bills, or face costly home repairs.
Instead of offering
a fair loan, a smooth-talking salesperson may set you up with high interest
rates, outrageous fees, and unaffordable repayment terms. You could end up with
a loan that you cannot afford to repay, and risk losing your home to
How to Be a
Be suspicious of anyone who offers you "bargain loans," whether they send you an
offer, call you on the phone, or come to your door. Don't rely on salespeople
who promise easy credit. Don't be fooled by loan offers you see on television or
receive in the mail–they don't always tell the full story.
If you need a loan, see if you are eligible to get one from a local bank, credit
union, or mortgage company. Compare total costs of the loan as well as interest
rates. Understand the points and fees. A loan with a lower monthly payment is
not always the better deal; it may have a high balloon payment that is due in a
Be wary of
financing offered by a home improvement contractor. Dishonest mortgage
brokers and contractors sometimes work together to take advantage of homeowners.
Make sure you understand what kind of financing you are being offered. For
example, is it an unsecured home improvement loan, a second mortgage, or a
refinancing? To protect yourself, shop around for financing from lenders not
associated with the contractor. Ask a lawyer or housing counselor to review the
financing terms with you.
Call the State
to check out mortgage lenders. Call the Maryland Office of the Commissioner
of Financial Regulation at 410-230-6097 or toll-free at 1-888-784-0136 to find
out if the mortgage lender is licensed, as required, and to find out if
complaints have been lodged against the lender.
Know your credit
rating and credit score. Sometimes people who have good credit are charged
higher "subprime" rates and fees for loans because they don't know that their
credit is good. Get your credit report from the three credit bureaus below.
Maryland residents are entitled to a free copy of their credit reports each
year.Equifax: (800) 685-1111, www.equifax.comExperian: (888) 397-3742,
(800) 888-4213, www.transunion.com
You can also
request your credit "score" for a fee from the credit bureaus, or a lender can
give you a free copy when you apply for a loan. Your credit score is a number
that lenders use to decide how good a credit risk you are. Most credit scores
range from 300 to 850, and the higher the score, the better your credit. Most
lenders consider scores over 700 as "good" to "excellent" scores. Avoid lenders
who won't give your score to you.
questions. Before borrowing money, know exactly what the lender is offering.
You have a legal right to know the total cost of the loan, the annual percentage
rate, the monthly payments, and how long you have to pay back the loan. Ask
questions until you understand everything. It is important to know more than the
before you sign. Always assume that any paper you sign is a contract. Before
you sign the loan papers, ask a lawyer or trusted friend to go over them with
you. Don't sign a document with blank spaces.
payments. One way that lenders make loans seem attractive is to make the
monthly payment small but require a big balloon payment at the end of the loan
period. Lenders may promise to help you refinance when it comes time to pay it
off, but watch out! Predatory lenders make money by charging excessive fees
every time they refinance the loan.
See a housing
counselor to discuss your options. You can locate counselors certified by
the U.S. Department of Housing and Urban Development (HUD) by calling
Consider a Reverse Mortgage If you are a homeowner age 62 or older, a
reverse mortgage may be better than getting a home equity loan. A reverse
mortgage gives you money that you don't have to repay until you move, sell the
house, or die. You choose to get the money as a lump sum payment, a monthly
income, or a combination of both. If you get a reverse mortgage, you can't lose
your house to foreclosure the way you could with a home equity loan. A reverse
mortgage does use the equity in your home, so consider your options carefully.
Get advice from a lawyer or a financial adviser about whether a reverse mortgage
is right for you.AARP and AARP Maryland provided the information in
this issue. Material used by permission. Much more information is included in
AARP's free guide, "Borrower's Guide to Home Loans." Call to request a copy:
1-800-424-3410 or visit www.aarp.org
Maryland Attorney General's Consumer Protection
DivisionConsumer hotline: (410) 528-8662 or 1 (888) 743-0023 toll-free
200 St. Paul Place, Baltimore, MD 21202
410-576-6300 / 1-888-743-0023 toll-free / TDD: 410-576-6372