The equity in your home may be your single greatest asset. Many people have worked for years to own their homes “free and clear”. In areas with high rates of real estate appreciation, these homeowners may be “land rich, but cash poor.” This situation makes the homeowner vulnerable to home equity loan fraud. Elderly and minority homeowners seem to be targeted by fraudulent home equity loan practices.
Home equity loans allow the owner to borrow money against the home’s equity. Equity is usually calculated by subtracting the amount owed on the home from the estimated value of the home. The home is the collateral that guarantees your loan. If you should be unable to repay the loan, you could lose your home to foreclosure.
Consumer Actions recommends that you ask these questions before taking out a home loan:
What is the total amount, including fees and interest, I will need to pay off this loan?
What is the annual percentage rate of interest (APR)? If it is at least 10 percentage points higher than rates on Treasury Securities of the same maturity, you must be given more information and special protections.
Is the interest rate “fixed” or “adjustable”?
How does the quoted rate compare with those of other lenders?
What fees, points and closing costs will be added to the loan?
Is there a “balloon” payment?
How much are my monthly payments and for how many months?
Can I really afford these loan payments?
Do I really need the repairs or improvements?
Will there be a prepayment penalty if I pay the loan off early or refinance with another lender?
Home Equity Fraud
To protect homeowners from home equity fraud, Consumer Action and the Federal Trade Commission have identified some of the practices that constitute home equity loan fraud.
For more information contact Consumer Action at firstname.lastname@example.org or 415-777-9635 or 213-624-8327 or TTY: 415-777-9456. Consumer Action provides consumer advice and referrals to complaint-handling agencies. If you call, leave a message and a counselor will call you back. Chinese, English and Spanish spoken