Home Equity Loan Scams (2026)

If home equity loan scams is on your radar, this short guide cuts through the noise. Here is what is worth knowing, and how to put it to work today.

Key Takeaways

• These days home equity loan scam artists are lurking around every corner.
• They’re hungry, they’re determined, and they’re coming after your equity.
• Unscrupulous loan peddlers are known as predatory lenders because of their uncanny resemblance to vultures.

Homeowners beware. These days home equity loan scam artists are lurking around every corner. They’re hungry, they’re determined, and they’re coming after your equity.

Unscrupulous loan peddlers are known as predatory lenders because of their uncanny resemblance to vultures. These loans encourage people to consolidate their debts and suggest this will prevent them from ever overspending and maxing out their credit cards again.

Asset-based lending

Predatory lenders work hard to make loans based on the amount of home equity a borrower has rather than considering the borrower’s ability to repay the loan.

Red Flag: You’re assured that it doesn’t matter what your income is because the value is in your home equity.

Deceptive marketing

Victims of predatory lending frequently describe being subjected to a flood of phone calls and letters from brokers and lenders, encouraging them to take out a home equity loan.

Red Flag: Lenders who engage in high-pressure tactics, telemarketing, cold calling, and deceptive advertising campaigns.

Excessive fees

Predatory lenders routinely charge borrowers fees totaling 15 to 20 percent of the loan amount. Fees alone can have a ruinous impact on a homeowner’s equity. But add them to prepayment penalties, and you’re locked into a high-rate, financially disastrous loan.

Red Flag: You inquire about fees but can’t get the facts. They insist there are no “up-front” fees.

Equity stripping

You need money. You don’t have enough coming in each month to cover your expenses. You have equity in your home. A lender tells you that you could get a loan. This is a big shock because you know you will have difficulty keeping up with the payments. The lender encourages you to “pad” your income on your loan application to help get the loan approved.

Equity stripping is particularly dangerous for people who find themselves in financial trouble. Scammers target people facing foreclosure or other financial hardships and make false promises of relief. Beware of anyone who pops up at what seems like the perfect time promising to let you cash in the equity you’ve built up without any consequences. Falling for this scam could result in losing your home and all the equity you’ve accumulated.

Red Flag: Any suggestion that you can qualify for a loan when you know the truth is you cannot reasonably make the payments.

Balloon payment

You’ve fallen behind in your mortgage payments. Another lender offers to save the day by refinancing your mortgage and lowering your monthly payments. But beware. The payments may be lower because the lender offers a loan on which you repay only monthly interest. And then in three or five years, WHAM! You discover you owe a huge sum, known as a balloon payment. That could wipe you out if you don’t have thousands of dollars set aside in anticipation of this.

Red Flag: Unrealistically low payments.

Loan churning

Senior homeowners who are asset-rich but cash-poor are prime targets for this scam. A mortgage company contacts you offering to refinance your loan and throw in some extra cash. Then in another year two, here they come, “suggesting” it’s time to refinance again, pulling out more cash. And again, and again. It’s called churning, and it’s not good. The problem is that fees and interest rates increase exponentially each time you refinance.

Red Flag: Lenders contacting you and suggesting that a loan is a way to get your equity to start “working” for you.

Not all home equity lenders are predatory

The best way to protect yourself against unscrupulous lenders is to be keenly aware of their tactics and always on the lookout for red flags. If you need an explanation, talk to someone you can trust who has nothing to gain or to lose by the decision you make. Be careful how frequently you refinance your mortgage. Talk to a HUD-approved housing counselor if you have questions or concerns about any mortgage loan transaction.

Get a second option, another quote, and above all, consider all the costs of financing and repayment before you agree to a loan.

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The bottom line: a little research on home equity loan scams goes a long way. Compare your options, watch for seasonal offers, and never pay full price when a better deal is one click away.

Originally published at everydaycheapskate.com.