Home Equity Loans

Your home equity is, in very simple terms, the difference between how much you owe on a mortgage and how much your home is worth. For instance, if your home is worth $150,000 and you have a mortgage worth $100,000, your home equity is equal to $50,000 (although homeowners with second mortgages or liens must also consider these factors when determining their true home equity).

Some people then borrow back their equity by taking out a home equity loan to make other payments or purchases. However, these loans hold a person's home as collateral, and therefore, when people are not able to make full timely payments on their home equity loans and the associated interest, they risk losing their house.

Risks of Home Equity Loans

During the housing crisis, many predatory lending organizations deceived homeowners into taking out home equity loans that they could not afford to pay back without understanding the full risks. According to the Federal Trade Commission, examples of predatory home equity loan schemes may include:

• Equity stripping. Lenders encourage a person to apply for a loan they cannot possibly afford with their current income, and advise applicants to cite a higher income on the application to get the loan approved. When the borrower cannot meet monthly payments, the lender then forecloses.
• Balloon payments. People who cannot afford their mortgage payments are offered refinancing to lower these payments. However, the new, lower monthly payments are actually only payments on interest, not the actual money borrowed. When the loan term ends, borrowers must pay the entire amount they actually borrowed in one payment or face foreclosure.

Before you take out a home equity loan, it is important to fully understand the contract and the associated risks, and to evaluate your other options.

Contact Us

If you have been the victim of a predatory lending scheme and are now at risk of losing your home, the Maryland foreclosure defense attorneys at Chaifetz & Coyle, P.C., can evaluate your situation and help you fight back. Contact our offices today at 443-546-4608.