How To Avoid Predatory Lending: 5 Ways To Protect Yourself
While the exact nature of predatory lending is complex, it generally involves the lender performing fraudulent or unscrupulous practices in order to strip equity from the consumer. Predatory lending has, unfortunately, become more and more common in the world of mortgages, so you must be aware of how it works if you want to avoid dubious lenders when you proceed with home buying. You need to make sure you avoid any mortgage lenders that try to deceive, coerce, or exploit you with unscrupulous actions. So, check out the following five ways you can protect yourself.
1. Understand The Basics Of Predatory Loans
There are lots of different ways that fraudulent or unscrupulous mortgage lenders can prey on you and exploit you to gain financial advantage and in turn, leave you with financial difficulties. Predatory lending can involve loaning money based on your assets rather than your ability to repay the mortgage loan and encouraging you to frequently refinance so that excessive fees can be charged. It is important you spend time researching basic predatory loan tactics. When you understand them, you can take steps to avoid them. Common predatory loan tactics include:
- False disclosure, in which the lender misrepresents the actual costs and risks of a loan.
- Inflated fees and costs, in which fees for things like appraisals and closing costs are much higher than the fees charged by typical reputable mortgage lenders.
- Loan packing, in which products you do not want are included, such as credit insurance.
2. Compare Rates To Find The Best Deals
One of the easiest ways of avoiding predatory lenders is to go with a reputable mortgage lender. You should compare mortgage rates to find the best deals. Never go with the first lender you encounter. To ensure you are protected and get the best mortgage rate, you need to spend time carefully scrutinising the offers and terms and conditions of each loan policy offered by the most trustworthy lenders.
3. Beware Of “Teaser Rates”
A teaser rate is an unusually low introductory rate for a mortgage loan. It could be as low as 0%, making it an attractive offer for homebuyers wanting to get a low rate. Of course, the trick is once the introductory rate expires, a much more dramatic rate will be introduced in its place and you will end up paying much higher monthly repayments. To avoid teaser rates, always read through all terms and conditions carefully so you know exactly what you are signing up to.
4. Opt For Fixed-Rate Loans
Rather than going with trickster teaser rates, opt for a fixed-rate mortgage loan. With a fixed-rate loan, the interest rate remains the same throughout the loan’s term. While you also have the option of going with other types of mortgage loans, one thing is for sure: you must always be wary of and question high interest rates and fees that are way beyond the norm or reputable lenders. Refuse any additional services and payments that you do not need and cannot afford. A known tactic of predatory lenders is to charge very high interest rates to high-risk borrowers who are very likely to default and lose everything to the lender.
5. Know The Different Loan Types
In addition to fixed-rate mortgage loans, there are various other reputable options you can choose from to best suit your personal financial circumstances. When you become knowledgeable about the different mortgage loan types available, you can make a more informed decision and ensure you do not fall victim to a predatory lender. So, learn what the difference is between a standard variable rate mortgage, a discounted rate mortgage, a capped rate mortgage, a tracker mortgage, an interest-only mortgage, a repayment mortgage, and more.
