How Predatory Lending Works

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.

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