Everyday Cheapskate: Lions, Tigers and Predatory Lenders: Oh My!

Homeowners, gather 'round and clutch your wallets. These days, home loan scam artists are lurking in the shadows like that weird neighbor who's always "just checking in." They're hungry, they're relentless and they've got their beady little eyes on your home equity.

Meet the loan sharks -- or as I prefer to call them, predatory lenders. They've earned this charming nickname because they circle your finances with all the grace of vultures at an all-you-can-eat roadkill buffet. Their pitch? Consolidate your debts! Simplify your life! Pay off all your credit card debt! It's almost as if they're trying to sound helpful, which is exactly when you should start clutching your pearls.

These folks don't care if you can actually pay back the loan. They're more interested in the size of your home equity -- because that's where the real meat is. This little game they play is called asset-based lending, and it's the financial equivalent of selling you a bridge in Brooklyn.

DECEPTIVE MARKETING

If you've ever had the pleasure of receiving a relentless flood of phone calls and letters from brokers, congratulations! You've been targeted by predatory lenders. They'll encourage you to take out a home equity loan with all the subtlety of a used car salesman who's behind on his alimony.

Red flag: High-pressure tactics, telemarketing calls that make you want to change your number, and advertisements that seem too good to be true. Because they are.

EXCESSIVE FEES

Predatory lenders have a special talent for charging fees so astronomical, NASA should be concerned. We're talking fees that could eat up 15% to 20% of the loan amount. By the time they're done, your equity has been whittled down to something that looks like the contents of your couch cushions. And don't even get me started on the prepayment penalties that'll keep you tied to this financial disaster like an anchor.

Red flag: If you ask about fees and the answer is as clear as mud, run. And don't look back.

EQUITY STRIPPING

So, you need cash. You're short on funds but have equity in your home. A lender comes along and says, "Sure, we can get you a loan." You know in your heart of hearts that paying it back will be like trying to get a teenager to clean their room, but the lender encourages you to "adjust" your income on the application. It's like suggesting you lie on a resume -- except this lie could cost you your home.

Red flag: If a lender suggests you can afford a loan that you know you can't, it's time to bail. Fast.

BALLOON PAYMENT

Falling behind on mortgage payments? Don't worry, a new lender is here to save the day with a lower monthly payment! But before you start planning your victory parade, check the fine print. Those lower payments might just be the interest, with the principal payment looming ahead like a financial tsunami.

Red flag: Payments that seem too good to be true. They are.

LOAN CHURNING

If you're elderly and happen to own your home, you're like catnip for predatory lenders. They'll offer to refinance your mortgage and even throw in some extra cash. But every time you refinance, those sneaky fees and possibly interest rates go up. It's like running in place on an incline so you are never making progress but instead falling backward.

Red flag: Lenders contacting you out of the blue, or any mention of making your equity "work" for you. Newsflash: Your equity isn't lazy. It doesn't need a job.

Not all lenders are out to get you, but the best defense against those who are is a healthy dose of suspicion and a sharp eye for the red flags. Before you sign on any dotted line, get advice from someone who won't profit from your decision. Then, take a deep breath, consider all the costs, and maybe sleep on it. After all, your home is your castle -- don't let the vultures turn it into a snack.

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Mary invites you to visit her at EverydayCheapskate.com, where this column is archived complete with links and resources for all recommended products and services. Mary invites questions and comments at https://www.everydaycheapskate.com/contact/, "Ask Mary." This column will answer questions of general interest, but letters cannot be answered individually. Mary Hunt is the founder of EverydayCheapskate.com, a frugal living blog, and the author of the book "Debt-Proof Living."