Working On Your Behalf: Understanding Home Equity Loans
by NM Attorney General Patricia Madrid
If you own your home, it is probably your most valuable possession. Borrowing money based on the value or equity of your home can sometimes be an option for consolidating bills or paying for things like home repairs, medical expenses, or college tuition. Most banks and financial institutions make these types of loans available with good terms, low rates, and reasonable fees. But there are some unethical lenders who offer mortgage loans that can strip the equity from your home. Given the importance of protecting your home, it is vital to be alert to predatory lending practices.
You can expect to be charged fees when making a loan. Such fees are typically low. A loan might have a 1% origination fee plus charges for attorneys fees, surveys, or similar services. If a lender asks you to pay high fees you should be wary. The best advice is to shop around and compare the fees of various lending institutions.
Some lenders may try to sell you a loan they call a bill consolidation loan by stressing that it has a lower monthly payment. But read the fine print. While the monthly payment may be lower, you will be paying for a much longer period and the total amount you will pay will be much more in the long run. When determining whether to take out a particular loan, do not look at just the monthly payment. Calculate the total interest you will pay on the entire loan before you make your decision.
Some lenders will tell you that they can reduce your monthly payment by having you pay only the interest on the loan. This can result in a large balloon payment due at the end of the loan. You may find yourself paying on an interest-only loan for years and owing the entire amount of the loan at the end of the period.
Each time a loan is refinanced you are likely to have to pay more fees. To determine if refinancing will actually save you money be certain to figure into your calculations all the fees and new rates you will be paying.
There are unscrupulous lenders who will attempt to pack unwanted extras into a loan package. It is important to watch for extras such as high cost credit or disability insurance. These costs will drive up the total cost of the loan and the monthly payments. A lender cannot force you to accept credit or disability insurance as part of your loan package.
Tips for avoiding home equity scams:
- Use comparison shopping. Check with a number of lending institutions and compare their fees and rates. You will not know if you are being offered the best "deal" if you do not comparison shop.
- Avoid high pressure sales tactics. Take your time when shopping for a loan. Solicit the opinion of friends and families about the terms of the loan.
- Ask for help. Don't be afraid to ask for help. If you don't understand any of the terms or conditions of the loan ask before signing. You might even want to consult with an attorney.
- Be careful. Be wary of unfamiliar lenders who contact you. Dealing with lending institutions in your community tends to be a safer approach. Predatory lenders have been know to target particular neighborhoods where they feel they can make their high interest loans.
If you suspect you have been victimized by a home equity scam or that a predatory lender is trying to perpetrate a scam on your neighborhood, call the Consumer Protection Division of the Attorney General's Office at 1-800-678-1508. If you have questions about loan practices, you can call the Financial Institutions Division at 1-505-827-7100 for information on legal loan practices in New Mexico.
Patricia Madrid is the Attorney General of New Mexico.
Didn't find what you were looking for? Click Here to visit the ARCHIVES or
editor@nmjournal.com
Copyright ©2000, 2001 WordPros Publications, Inc. All Rights Reserved. No part of this site may be duplicated in any form without the express written consent of WordPros Publications, Inc. This includes all text, formatting, graphics, photographs, scripts and coding, etc. All brand names, logos, and product names used on these web pages are trademarks or tradenames of their respective holders. Terms of Use.
