Industry Tips
Mortgages
Mortgage loans are secured by your home. In the event you are unable to meet the monthly payment for the mortgage, the lender can foreclose and take your home. Your credit rating will also be affected if you default on your loan.
Standard home equity loans or second mortgages are closed-end loans that can have a fixed term, a fixed interest rate, and fixed monthly payments, or they can carry an adjustable interest rate that fluctuates with a key index, such as the prime rate.
Home equity lines of credit are open-end loans or revolving credit lines meaning that you can withdraw in amounts and at times when you have the need. The lender provides you with checks or other items to access your credit line. You may withdraw from the account as long as you don't exceed your line of credit. The amount of the monthly payment is based on the amount of credit you have used. Some lenders may charge a fee for the use of the line of credit.
Before applying for a mortgage loan, make sure that you have sufficient money for your expenses and borrow only when you can afford it. Once you have established the amount that you want to borrow, take time to figure out what you can afford for a monthly payment without putting a strain on your budget. Just because a lender is willing to make you a loan doesn't mean that it is the right loan for you. Take the time to know and understand all of the terms, conditions and costs of a loan before you sign the contract.
Questions to ask about your loan:
-- What will my monthly payment be?
-- Does it include taxes and insurance?
-- What is the interest rate?
-- Is the interest rate the same throughout the loan?
-- How many payments will I make or what is the term of the loan?
-- Are the payments the same for the entire term of the loan?
-- Will the loan be fully repaid at the end of my payments? If not, what will the loan balance be?
-- What fees am I paying and what are they for?
-- Can I pay the loan off early, and will I have to pay a penalty if I do?
-- Am I sure I can afford the monthly payments?
-- Do I really need this loan?
Although most lenders and brokers are honest, there are a few unscrupulous firms that engage in a practice called predatory lending. Some predatory lending practices to look out for are:
-- Loans with excessive points and fees or excessively high interest rates.
-- "Packing" -- a practice in which credit insurance and other fees are added to the loan, often without the knowledge or consent of the borrower.
-- "Flipping" -- a practice in which consumers are encouraged to repeatedly refinance their loan. Each time the loan is refinanced, the lender charges more fees and the borrower is placed further into debt.
You can protect yourself against predatory lending by shopping around to find the right loan for you and making sure that you understand all terms before signing a loan agreement.
Remember:
- You can lose your home if you don't make the payments on your mortgage loan.
- You should only sign a contract after you have read it; your questions have been answered; and all blanks
have been filled in.
- You need to make sure the loan payment and terms you were quoted agree with the loan payment and terms on your paperwork.
- You have the right to cancel a credit transaction on a refinanced or consolidation loan within 3 business days from the day the transaction is closed.
- You have the right to change your mind on a home purchase loan at any time prior to the loan closing.
