Traditional Mortgages

Understanding Traditional Mortgages
FHA Loans
VA Loans
Understanding Home Equity
Borrowing Against Your Equity
Helpful Steps to Take Before Buying a Home
What You Should Know About Predatory Lending
Additional Resources

What You Should Know About Predatory Lending

"Predatory lending" refers to a variety of lending practices that strip wealth from borrowers. High fees and excessive prepayment penalties are hallmarks of predatory loans.

Fees are costs to borrowers that are not directly reflected in interest rates. On the competitive loans, fees below 1% of the loan amount are typical. On predatory loans, fees totaling more than 5% of the loan amount are common.

A prepayment penalty is a fee charged by a lender when a borrower pays off a mortgage before all the payments are due. This "early pay-off" can happen because you move or refinance your mortgage to get a lower, more affordable interest rate. While uncommon in the prime mortgage market, these penalties are included in up to 80% of subprime mortgages—those loans designed mainly for borrowers with flawed or incomplete credit histories. It's wise to ask whether a loan has a prepayment penalty, how long it will remain in effect, how much it would cost to pay off the loan early, and whether there are circumstances under which the penalty would be waived.