Home Equity Loans Popular Scams

Most borrowers fail to realize that when trading their much beloved home for cash, lenders can foreclose on their property in the case of default. Moreover, because of fly-by-night operators who are ready to strip unsuspecting borrowers of their most prized asset, it is doubly necessary that borrowers be familiar with some frauds that could be perpetrated on them.

Stripping: The most common type of home equity loan fraud is "stripping," wherein lenders give loans to borrowers knowing fully that the borrower would be unable to repay them, thus paving the way for these scamsters to foreclose on your property and then sell it for a neat profit. The most common ruse for making borrowers accept such high-cost debt is disguising them as home repair loans. Many an unsuspecting borrower who has a lot of home equity but also piles of credit card debt can easily be taken for a ride.

Flipping: This is an old favorite where a lender will agree to refinance an existing mortgage rather than foreclosing. This is normally music to the ears of a weary borrower, but what is not disclosed are the exorbitant fees that are charged in refinancing which only increase the debt burden of the borrower.

Packing: In such a case the lender adds or "pads" extra charges into the home equity loan in the shape of credit insurance, settlement charges and other fringe charges which are of no real use to the borrower. The worst part is that such charges do little benefit to the borrower but unnecessarily eat away at the equity of a home.

However, some simple steps, such as checking a lender's credentials, shopping around for better deals, and consulting experts, can make the task of applying for a home equity loan that much easier.

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• In a normal 30 year fixed rate loan situation, your monthly payment is applied towards principle and interest. It is amortized ...