While the majority of home equity loan products are not only good for the homeowners, but also for the lenders, there are many types of loans that use equity that can be high risk and in many cases fraudulent. Here are some tips to protect yourself.
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Home Equity Loans
As with all financial dealings, make sure you do business with a reputable company, or if the company is not known to you, research it by checking with the Better Business Bureau or other government agencies.
Besides normal fraud, you should be aware of specific types of loans that can be high risk especially for those that are not healthy financially. These include balloon loans.
A balloon loan as a home equity loan is one that allows you to not make payments, or very small ones until the balloon payment is due. While this may look attractive at the beginning, it be an entirely different story was the balloon is due.
Most balloon mortgages or home equity loans are for seven years, with the balloon coming due at the end of the seven year period.
If the balloon payment cannot be paid, the loan may be reset, in which it starts over again. While more common in commercial real estate, individuals can also take out balloon loans on their residence. Be aware of all the stipulations concerning a balloon loan before taking one out.