Predatory Lending: Cheat Sheet
Stuff you need to know:
- Predatory lending is any misleading or dishonest lending practice that targets uninformed homebuyers or borrowers with poor credit.
- Some predatory lenders commit loan fraud -- consciously misleading homebuyers about the price of their loan -- while others tack on hidden fees and insurance policies that pad the loan with unnecessary charges.
- Adjustable rate mortgages (ARMs) are one of the favorite tools of predatory lenders. Uninformed borrowers think they are signing up for a 7 percent interest rate, but the initial "teaser" rate can jump to 12 percent or higher after only a few years.
- Before you sign any type of mortgage loan, educate yourself on the basics of fixed vs. adjustable rates. Consult a non-profit credit counselor (not a debt consolidation service) and have them review your finances to make sure you can afford a new home with a traditional fixed rate mortgage.