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Consejos para Evitar Préstamos Abusivos

Tips to Avoid Predatory Lending

by Miriam De Dios

Here is useful information to help keep you from being a victim of unscrupulous scam artists.

Big fees.

A common tactic of predatory lenders is to charge unnecessary fees. Research typical fees in your area. Generally, a charge of three points-3% or less of the originating loan amount-is a good deal.

Penalties for paying off early.

If you're charged a "prepayment penalty" before you can refinance, beware. The penalty period can last several years and cost you thousands of dollars.

Inflated interest rates from brokers.

Beware brokers who boost the interest rate above the lender's actual charge. Ask if your broker will be paid a "yield-spread premium," which is a financial reward lenders pay for inflated interest rates.

Steering and targeting.

Predatory lenders often target seniors and people of color, steering them into unnecessarily expensive loans. Ads that say, "Bad Credit? It doesn't matter" is one way to lure those with less-than-stellar credit. Beware lenders or brokers who contact you, or those who try to get you to rush into decisions.

Adjustable interest rates that "explode."

Make sure you understand the worst-case scenario for future payments because adjustable-rate loans can increase significantly. Don't count on a future refinance to get out from under an unaffordable loan.

Promises to fix problems with future refinances.

A common tactic of predatory lenders after selling you a bad deal is that they promise to refinance the loan later. Steer clear of bad deals from the start-if the payments are too high now, just say no.

Repeated refinances that drain you.

"Flipping" is when you're coerced into refinancing several times, losing more money in points and fees each time. The result of flipping is that you might end up owing even more on your house, losing ("stripping") valuable equity, and paying more than necessary.

Not counting taxes and insurance.

Predatory lenders are notorious for making payments seem artificially low by not counting all the costs-which you will be required to pay. Ask up front whether your monthly payment includes the costs of property taxes and insurance and whether the lender established an escrow account for these costs.

Published 6-24-2013

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