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Considering a Secondary Loan Company? Watch for Predatory Lenders!

  • 03-24-2018
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  • By: Mike Gustus
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Because of the recent interest rate hike combined with additional mortgage rule changes or “Stress Test” implementation, Canadian home buyers are turning to alternative lenders to secure a mortgage. If you’ve had trouble qualifying for a mortgage and are temped to turn to go this route, please be careful! There are other lenders that can be helpful, but for those who don’t carefully read the ‘fine print,’ it can lead to a huge financial mess.

Some examples or possibilities:

  • Interest and qualifying rates will be higher, and they may charge a small percentage of the mortgage amount as a lender’s fee, so closing costs increase.
  • Less ‘wiggle’ room, such as a ‘sale-only’ clause. This is not as common, but if included it could mean the only way to get out of the mortgage is to sell your home (rather than to transfer it later)
  • Scam artists, such as a paralegal acting as a broker who convinced new home owners to give the $100,000.00 they borrowed back to him, so he could invest it for them. This crook disappeared with their money and they ended up being evicted from their home.
  • If you must miss a payment, make sure your lender is willing to make some type of arrangement for you to catch up. Some will force clients into a power of sale or foreclosure.

A few tips to consider:

  • seeking advice from a broker
  • make sure you have some type of exit strategy, especially with a higher interest rate. If you don’t go in with the goal of eventually converting to a lower interest rate, there might be a problem in the future.
  • look for an open mortgage – usually higher interest rate, but worth it to be able to get out if something happens.
  • ask lots of questions, do your research and look for client reviews

It may be hard to identify a “predatory lender” so here are some clues that will help you to decipher if a lender may not be safe:

  • Your credit is bad and you’re desperate – be wary if they make light of this fact or assure you they won’t do a credit check. Obviously, they aren’t worried about getting their money back and will do so another way and make it very difficult to get out of.
  • They are offering a crazy high interest rate or charging extra fees
  • Extra paperwork – especially after you’ve already signed. Extra documents that have some blanks that they say will be completed later – they could put any info in those blanks or change their mind and your signature will be on it. Or a second set of documents that won’t be shared with all parties is also a red flag.
  • Aiming for certain types of borrowers – usually people who are more vulnerable, such as seniors, the disabled or lower social status, promising they can get a loan, usually charging very high interest rates or may even charge a broker fee without ever finding a loan for the client.
  • Pushy sales people or saying they are the only ones that can help you – A lender that says they are the only chance of you finding a home and telling you not to bother looking for another institution, or one that makes you feel pressured or the lender can’t explain some of the terminology – all bad signs!
  • Don’t go with what they ‘tell’ you; rely on the what the ‘paper copy’ says - Promises that sound to good to be true usually are. If you suspect this might be true, make sure what you sign agrees with their ‘verbal’ promises.

Please don’t hesitate to contact me at 306-668-1800 if you need help in determining where and how to go about obtaining a mortgage. My team and I can point you to reputable Mortgage Specialists as well as assist you in the important decision of becoming a home owner!

Credits:
1.  The Canadian Press
2. https://money.usnews.com/money/personal-finance/banking-credit/articles/2017-02-07/5-clues-that-youre-dealing-with-a-predatory-lender

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