If you're an older homeowner with bad credit and a lot of home equity, you are probably being bombarded with junk mail, phone calls, and email solicitations from salespeople trying to get you to refinance your mortgage. Be very careful dealing with these people--they may be practicing a predatory lending technique called equity stripping. They'll be doing the stripping, but it's you who ends up naked.

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Look Out for Strippers

Equity stripping involves refinancing with ridiculous fees and costs that the homeowner may not be aware of. Here's how it works. Say, you have a bad credit mortgage and are paying an interest rate of 12%. It was a $200,000 loan, but you only owe $100,000 on it and your home has appreciated and is now worth $400,000. Some guy you don't know comes banging on your door and claims that he can get you an 8% interest rate. Your payment drops by about $2,200 a month! Sounds pretty good, doesn't it? You can't wait to sign on the dotted line.

What a Lower Rate Costs if You Have Bad Credit

But there's a catch. You only owed $100,000 on your mortgage. The new loan is for $125,000, and a lot of that payment reduction comes from starting your loan over for another 30 years. And $25,000 in loan fees on a $100,000 loan is criminally high. All you notice is the lower payment--you don't see how much it's costing you to get it. There have been documented cases of seniors refinancing several times in just a few years, over and over until they have no home equity left, can't afford the payments, and end up in foreclosure.

The Solution? Take Mortgage Financing into Your Own Hands

According to a study by AARP, seniors who respond to solicitations rather than contacting lenders themselves are more likely to end up with bad deals. Those who rely on a mortgage broker to find the "best loan" for them are also less likely to end up with a satisfactory mortgage experience. You should therefore shred and toss that junk mail, delete the emails (c'mon, they're probably coming from the same folks who claim they can help you lose 10 pounds in 2 days), and screen your phone calls. Look for lenders on your own terms--it's easy to do online, even if you have bad credit.

Try a Reverse Mortgage: Bad Credit Okay

If you have enough home equity to attract the equity strippers, you should really consider a reverse mortgage. Find a lender approved by HUD to fund Home Equity Conversion Mortgages (HECMs). The fees on these loans are limited by HUD. You will see a reverse mortgage counselor to determine if a reverse home loan is a good solution for you. Best of all, people with bad credit don't pay any more than people with good credit. Because you don't repay the mortgage until you die, sell the property, or move out, your income and credit history are irrelevant.