Volume 1 Number 42
October 18, 2004



“Your Money, Your Life,” a statewide public education initiative formed in cooperation with financial industry groups and the Allstate Foundation, offers a comprehensive Web site on personal financial matters. www.yourmoneyyourlife.org



If you have to borrow money to repair your home in the aftermath of the storms, protect yourself by being aware of your rights as a consumer.

Unfortunately, this is a time when some homeowners make decisions out of despair and fall prey to unscrupulous operators who seem to offer just what is needed in the way of a loan. These wolves in sheep's clothing are known in the industry as predatory lenders.

Predatory lenders offer easy access to money, but use high-pressure salespersons and unfair techniques such as inflated interest rates, outrageous fees, unaffordable repayment terms, and harassing collection tactics. Homeowners can be tricked into taking out loans that they cannot afford to repay and, therefore, risk losing their homes to foreclosure.

To combat predatory lending, the Florida Fair Lending Act prohibits predatory tactics on home loans. Some of the tactics used by predatory lenders include charging prepayment penalties for longer than three years; refinancing a loan during the first 18 months unless there is a benefit to the borrower; balloon payments on loans that mature in less than 10 years; increased interest on loans that are going into default; extending credit regardless of borrower's ability to pay or calling the loan due even though the borrower has complied with the terms of the loan.

Additionally, late fees should not exceed five percent of the monthly payment.

The potential borrower should also be cautious when the loan involves making payments directly to the home improvement contractors or if a lender offers to originate a loan at the borrower's home without a prearranged appointment. The law also requires lenders to disclose certain facts about the loan at least three days prior to closing the deal. These disclosures encompass claus­es that stipulate that a mortgage will be placed on the borrower's home, and that the home could be lost in the event of foreclosure. If you need to borrow money for home repairs, medical expenses, or bill consolidation, shop around. Compare interest rates and total costs. A lower monthly payment is not always the better deal.

Never act immediately. Avoid lenders who call and promise guar­anteed, low-interest loans, take applications over the phone, or offer next-day approval if you pay them some money today. Read everything carefully and ask ques­tions. You have a legal right to know the total cost of the loan, the annual percentage rate, the monthly payments, and how long you have to pay back the loan. Ask to have all fees explained.

Avoid "balloon" payments. One way lenders can make loans sound very attractive is to make the monthly payment small but require a big "balloon" payment at the end of the loan period. Some may even have you wait to repay all of the principal amount at the end of the loan and promise to help you refi­nance when it comes time to pay it off. This promise may just an opportunity for the lender to charge you more high fees and closing costs.

Research the total cost of the loan before making a decision. Request and follow-up with refer­ence checks. Check with your local Better Business Bureau or call the Department of Financial Services at (800) 342-2762 to ask if there have been complaints against any company you are considering.     

The skyline for October is Daytona Beach, photo courtesy of the Daytona Beach Area Convention & Visitors Bureau.