Consumer advice from the Federal Trade Commission
(For FTC advice on shopping for home equity loans from reputable lenders, click here.)
If youre thinking about using your home as collateral for a loan, be careful, warns the Federal Trade Commission. Unless you can make the loan payments out of current income, you could lose your home as well as the equity youve already built up.
Unscrupulous lenders may offer you a high-cost loan based on the equity you have in your home. Certain lenders target homeowners who are elderly or who have low incomes or credit problems and then try to take advantage of them by using deceptive practices. The FTC cautions all homeowners to be on the lookout for:
Equity stripping: The lender gives you a loan, based on the equity in your home, not on your ability to repay based on your income. If you cant make the payments, you could end up losing your home.
Loan flipping: The lender encourages you to repeatedly refinance the loan and often, to borrow more money. Each time you refinance, you pay additional fees and interest points. That only serves to increase your debt.
Credit insurance packing: The lender adds credit insurance to your loan, which you may not need.
Bait and switch: The lender offers one set of loan terms when you apply, then pressures you to accept higher charges when you sign to complete the transaction.
Deceptive loan servicing: The lender doesnt provide you with accurate or complete account statements and payoff figures. That makes it almost impossible for you to determine how much you have paid or how much you owe. You may pay more than you owe.
Some of these practices violate federal credit laws dealing with disclosures about loan terms, discrimination based on age, gender, marital status, race, or national origin; and debt collection. You also may have additional rights under state law that would allow you to bring a law suit.
Here are some additional tips to remember:
The lure of extra money or the chance to reduce monthly credit payments can be very costly in the long run. High interest rates and other credit costs could get you in over your head.
Credit insurance may not be a good deal from a lender. If you want the added security of credit insurance, shop around.
Dont sign a loan agreement if the terms are not what you were given when you applied.
Ask for an explanation of any dollar amount, term, or condition that you dont understand. Federal law is very clear about what credit and loan term information must be provided in writing when you apply for a loan and before you sign any agreement.
In addition, shop around for the best loan terms and interest rates. Contact lending institutions, such as banks and credit unions, and consult a legal or financial advisor, or someone you can trust before you make any loan decisions. Or contact your local Fair Housing Office, legal aid, or senior services organization for information and help.
The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint or to get free information on consumer issues, visit www.ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.
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