In such cases, the unwary homeowners are stuck with loans they know nothing about. High Annual Interest Rates. Because the purpose of engaging in predatory lending is to reap the benefit of high profits, these lenders always charge extremely high interest rates. This drastically increases the cost of borrowing for homeowners, even though the lenders' risk is minimal or non-existent. Legitimate lenders charge points to borrowers who wish to buy down the interest rate on the loan.
Predatory lenders charge high points, but offer no corresponding reduction in the interest rate.
The borrower does not pay these points with cash at closing. Rather, the points are always financed as part of the loan. This increases the amount borrowed, which produces more actual interest to the lender. Predatory lenders frequently structure loans so that the borrower's payments are applied primarily to interest, and at the end of the loan period, the borrower still owes most or all of the principal amount borrowed. The homeowner cannot afford to pay the balloon payment, and either loses the home through foreclosure or is forced to refinance with the same or another lender for an additional term at additional cost.