Are you having financial trouble, and need to refinance with a new mortgage loan fast? Choose your lender carefully. The mortgage market is packed with predatory lenders who offer mortgages with terms that initially look appealing, but which will cost you in both the short and the long run.
What are the first signs that a loan is predatory?
Predatory mortgage loans typically have interest rates that are high for the market. When you ask about the high interest rate, the lender may recommend managing the interest rate by repeatedly refinancing ("flipping") the loan, another sign that the loan is predatory. High pressure tactics are a third bad sign; predatory loans are what one expert calls "loans seeking consumers," and lenders are aggressive in seeking out new customers. Unlike legitimate lenders, they solicit door to door or by telemarketing as well as by mail.
What do the terms of predatory loans look like?
Predatory lenders offer mortgage loans that not only have high interest rates, they come with an array of unethical fees and riders. An example of some of these unethical fees are:
• Prepayment penalties. Predatory lenders want to discourage borrowers from refinancing, so they charge a penalty for paying off the mortgage loan early. While nonpredatory loans very occasionally have prepayment penalties for paying off the loan within one to three years, a term that is unlikely to inconvenience homeowners, predatory loans frequently have penalties for paying off the loan even after three years. Refuse any loan that has a prepayment penalty that covers more than three years, and look closely at the terms for any loan that has even a short prepayment penalty. Because good lenders rarely append prepayment penalties, the existence of this penalty suggests that the mortgage loan is predatory.
• Yield spread premiums. When a mortgage broker charms a borrower into signing for a mortgage with an interest rate that is much higher than the borrower would be able to get from an honest broker, the brokers reward is a sum called the yield spread premium. The kickback is a powerful incentive for the broker to get you to pay a higher interest rate. If you are offered a mortgage loan with a yield spread premium, look elsewhere. Good loans never include this fee.
• Normal fees that have been inflated to abusive rates. Add up the cost of all the fees appended to your mortgage loan. If they are under 1% of the loan amount, they are normal. Predatory loans have fees of above 1%, and frequently charge fees above 5%.
Thanks to the credit crunch, avoiding predatory mortgage loans has become easier. Lenders, even unscrupulous lenders, simply dont have as much credit available to take on potentially bad debt. However, the crunch has also made homeowners desperate, and desperation equals vulnerability. Even if you are having financial problems, be critical of any offer you get. A predatory loan will leave you in even worse shape than before. Take your time, go over all the terms in detail, and avoid any lenders whose high pressure tactics make you suspect that they need you more than you need them. Sites Consulted Home mortgage -- Home equity loans -- Mortgage payment calculator --

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by: marciafreeman
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