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The dangers of refinancing
More and more elders are being victimized by loans from predatory lenders. These lenders often target elders, knowing that many elder homeowners are house-rich but cash-poor. To lure an elder into taking out a loan, a lender may promise a low monthly payment or a low interest rate. However, after the papers are signed, the elder often discovers that the terms of the loan are unfavorable and that the monthly payment is unaffordable. Tragically, elders who take out loans from these lenders often end up losing their homes to foreclosure. When money gets tight, it can be tempting to turn to any lender who is willing to give you a loan. But you are only making your problems worse if you let a predatory lender take advantage of you.
How do you know when you are dealing with a predatory lender? These lenders often market their loans aggressively, sending advertisements through the mail or advertising by phone. Such lenders may tell potential borrowers that their credit history or income doesn’t matter, or that they must act quickly in order to get a good deal. A common practice of these lenders is to avoid giving the borrower a copy of the loan documents in advance, and to discourage the borrower from bringing an attorney to the closing.
There are several problems with taking out a loan from a predatory lender. The required monthly payment may get bigger and bigger as time goes by. Or, a large "balloon" payment may be due eventually. If the borrower can’t afford the balloon payment, he or she will be pressured by the lender to refinance. Refinancing eats up more of the borrower’s equity and also results in a higher monthly payment. At the H.O.M.E. program, we have seen elders who have refinanced 5 or 6 times with the same predatory lender. These elders are now in danger of losing their home because they can no longer afford the monthly mortgage payment.
Predatory lenders charge very high closing costs, which may include several points as well as fees for mortgage brokers who may be entirely unknown to the borrower. Costs for unnecessary insurance policies may be included without the borrower’s consent. Also, predatory lenders usually pressure the borrower to pay off all of his or her debts with the new loan. But doing so puts the borrower’s home at greater risk, since failure to pay a credit card debt or car loan is unlikely to result in the loss of the borrower’s house, while failure to pay a mortgage can result in the loss of the home in just a few months.
The most important thing to remember is that if a loan sounds too good to be true, it usually is. Another important piece of advice is to always bring an attorney with you to a loan closing. The lender may tell you that you don’t need your own attorney, since the lender’s attorney will be there. But the lender’s attorney represents the lender’s interests, not yours. Lastly, remember that you have three business days to change your mind after you sign for a loan. At the closing, the lender must provide you with a form which you can sign and return during this period if you decide you do not want the loan.
Instead of falling prey to a predatory lender, there are a number of places you can turn to for help if you are having financial problems. If you need money for home for home repairs, your local town may have grants or low-interest loans available. There are also statewide programs that provide low-interest loans for septic repair or necessary home modifications. If credit card debt has become a problem, an accredited consumer credit counseling agency can help you negotiate with your creditors. if you need help managing your checkbook, Elder Services may be able to assist you with money management, to ensure that your bills et paid on time each month. For more information, please call Homeowner Options for Massachusetts Elders at 617-451-0680 or 1-800-583-5337.
This article was supplied by Berkshire County Regional Housing Authority.