It is no longer news that the cost of living in the country is nothing to write home about as the story from all the nooks and crannies of the society seem to be the same. The economic crunch has eaten too deep that Nigerians has delved into what some school of thought has termed cutting your coat according to your clothe rather than size.
We tend to need money for different personal reasons: to pay huge bills, investments, and home improvements, the list goes on. Whenever there is need to take that loan to offset those debts or to transact that business that will yield bountifully and you think the only solution to get the needed fund is to use your house or other landed property for collateral, so as to finance what it is you want to venture into, my dear, this is the time for you to do a whole lot of brainstorming.
If you think the answer in getting the issue solved is in refinancing, a second mortgage, or a home equity loan, consider your options very carefully as if you are unable pay back, you could lose your home as well as the equity you have built up.
Before applying for a loan, using your home as collateral, it is highly advisable to talk to an attorney, a financial advisor, or someone you trust so as to avoid regretting at the end of it all.
Creditors are business people, and some are weird, all that matters to them is to wheedle you to put pen to paper just for what is in it for them. Do not let anyone sweet-talk you into using your home as collateral to borrow money you may not be able to pay back. High interest rates and credit costs can make it very expensive to borrow money, even if you use your home as collateral.
Not all loans or lenders are created equal. Some unscrupulous creditors target older or low-income homeowners and people with credit problems. These creditors may offer loans based on the equity in your home, not on your ability to repay the loan.
Avoid any creditor who tells you to lie on the loan application. For example, stay away from a lender who tells you to say that your income is higher than it is. Avoid any creditor who pressures you into applying for a loan or for more money than you need. Avoid any creditor who pressures you into accepting monthly payments you cannot comfortably make. Avoid any creditor who does not give you required loan disclosures or tells you not to read them. Avoid any creditor who misrepresents the kind of credit you are getting, like calling a one-time loan a line of credit. Avoid any creditor who promises one set of terms when you apply, and gives you another set of terms to sign with no legitimate explanation for the change. Avoid any creditor who tells you to sign blank forms and says they will fill in the blanks later. Avoid any creditor who says you cannot have copies of documents you signed.
The Need To Protect Your Home And Equity
Situations can warrant the need to take up a loan. In embarking in such transaction, some steps have to be strictly adhered to so as to protect your home and the equity you have built up in the property. Consider the following:
Compare the Annual Percentage Rate: The Annual Percentage Rate is the single most important factor to compare when you are sourcing for loan. Considering not only the interest rate(s), but also points (each point is a fee equal to one per cent of the loan amount), mortgage broker fees, and certain other credit charges you have to pay the creditor, expressed as a yearly rate. Generally, the lower the APR, the lower the cost of your loan. Ask if the APR is fixed or adjustable — that is, will it change? If so, how often and by how much?
Points and fees: Ask about points and other fees that you will be charged. These charges may not be refundable if you refinance or pay off the loan early. And if you refinance, you may pay more points. Points usually are paid in cash at closing, but may be financed. If you finance the points, you will have to pay additional interest, which increases the total cost of your loan.
The term of the loan: How many years will you make payments on the loan? If you are getting a home equity loan that consolidates credit card debt and other shorter-term loans, you may have to make payments on those other debts for a longer time.
The monthly payment: What is the amount? Will it stay the same or change? Ask if your monthly payment will include escrows for taxes and insurance. If not, you will have to pay for those items separately.
Balloon payments: This is a large payment usually due at the end of the loan term, often after a series of lower monthly payments. When the balloon payment is due, you must come up with the money. If you can’t, you may need another loan, which means new closing costs, points, and fees.
Prepayment penalties: These are extra fees that may be due if you pay off the loan early by refinancing or selling your home. These fees may force you to keep a high rate loan by making it too expensive to get out of the loan. If your loan includes a prepayment penalty, find out what you would have to pay. Ask the creditor if you can get a loan without a prepayment penalty, and what that loan would cost. Then decide what is right for you.
Whether the interest rate for the loan will increase if you default: An increased interest rate provision says that if you miss a payment or pay late, you may have to pay a higher interest rate for the rest of the loan term. Try to negotiate this provision out of your loan agreement.
Whether the loan includes charges for any type of voluntary credit insurance, like credit life, disability, or unemployment insurance: Will the insurance premiums be financed as part of the loan? If so, you will pay additional interest and points, further increasing the total cost of the loan. How much lower would your monthly loan payment be without the credit insurance? Will the insurance cover the length of your loan and the full loan amount? Before you decide to buy voluntary credit insurance from a creditor, think about whether you really need the insurance and comparison shop with other insurance providers for their rates.
Generally, the creditor or mortgage broker will give you a written good faith estimate that lists charges and fees you must pay at closing, and the creditor will give you a truth in lending disclosure that lists the monthly payment, the APR, and other loan terms. If you don’t get these, ask for them. That makes it easier to compare terms from different creditors.
Before you sign anything, ask for an explanation of any amount, term or condition that you don’t understand.
Ask if any of the loan terms you were promised before closing have changed. Don’t sign a loan agreement if the terms differ from what you understood them to be. For example, a creditor should not promise a specific APR and then — without good reason — increase it at closing. If the terms are different, negotiate for what you were promised. If you can’t get it, be prepared to walk away and take your business elsewhere.
Before leaving the creditor, make sure you get a copy of the documents you signed. They contain important information about your rights and obligations.