Beware of Risky Bad Credit Home Equity Loans
In order to protect yourself from lenders who do not have the consumer’s best
interest in mind read the following tips to protect yourself:
Conduct business with a reputable company
Check with the Better Business Bureau or other government agency’s if
you are not familiar with the company
Aside from fraud be aware of loans that can have high interest rates and
be financially risky for those that are not healthy financially. These
include balloon loans and High LTV (loan to value ratio) loans.
Balloon Loans
With normal loans you will pay both the interest and principle over the
duration of the loan. With a balloon loan you pay only the principle throughout
the duration of the loan. However; the final payment is the entire interest
payment. These loans definitely have their purposes; they are intended for those
who are planning to live in the home for longer than the length of the loan. For
those who do plan on residing in their home inevitably, this payment can be
extremely risky as it can be tens of thousands of dollars or more.
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High LTV Loans
LTV is the abbreviated form of loan to value ratio. It is the appraised value
of the home in comparison to the amount of debt owed. An example; if your home
was appraised at $300,000 with just $25,000 remaining on the loan balance, and
you are interested in borrowing $25,000 in a home equity loan, this is
considered an LTV loan. There are some lenders who allow homeowners to borrow up
to 125% of the home’s value. You can imagine the risk in this! These are risky
loans because a home’s value can fluctuate based on the market and when the
price drops neither the bank nor the homeowner can recoup their loss on the
property if the home was to be sold or the loan was to default.
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