Mortgage Loans: Is Your Prospective Lender Predatory?
View PDF | Print View
by: marciafreeman
Total views: 67
Word Count: 592
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. Lenders may suggest offsetting these fees by frequent refinancing ("flipping") of loans, which is another bad sign. A third sign of a predatory loan is high pressure tactics. Lenders are eager, even hungry, for new business (one expert calls these loans "loans seeking consumers"), and they are aggressive in seeking you out and convincing you to sign. Although legitimate mortgage lenders never resort to telemarketing, junk mail, or door to door sales, predatory lenders routinely use these marketing methods.
What are the terms of a predatory loan likely to be?
Predatory lenders offer mortgage loans that not only have high interest rates, they come with an array of unethical fees and riders. Some of these fees are:
• Prepayment penalties. Predatory lenders want to force borrowers to stay with them for as long as possible, so they penalize borrowers for repaying the mortgage loan before the end of the term. Occasionally, a nonpredatory loan may have a prepayment penalty for repaying the loan within one to three years, a term short enough that it is unlikely to pose a problem to the average homeowner. However, predatory loans frequently charge penalties for terms far longer than 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. This penalty is rare on loans offered by legitimate lenders, so its existence strongly suggests that the loan you are evaluating is predatory.
• Yield spread premiums. If a mortgage broker convinces a borrower to take on an interest rate that is considerably higher than the borrower is entitled to, the broker gets a kickback called a yield spread premium. This kickback is a strong incentive for the broker to talk you into a high interest rate. If the mortgage loan you are offered includes a yield spread premium, back away. Legitimate mortgages never have yield spread premiums.
• 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. Even predatory lenders no longer have so much available credit that they can afford to make offers to borrowers who might not be able to cover their payments. 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. It may land you in even greater trouble. Go slowly, do your research, read all the fine print, and steer clear of any lenders whose hard sell makes them sound like they are in even worse shape than you are. Related content Mortgage payment calculator -- Refinance rates -- Refinance rates -- Loans -- Mortgage --
About the Author
Find more articles about refinance mortgage, visit getsmart.com.
Rating: Not yet rated