Predatory refinancing: warning signs and your rights

If you own your home, you have something predatory lenders are after: the value you have paid off over time, your home equityhome equityHome equity (or equity) is what your home is worth today minus what you still owe on the mortgages on it. You can borrow against that equity: with a home equity loan, which you receive as a lump sum and which usually has a fixed rate; with a HELOC; or with a cash-out refinance. In all of these the home is the collateral and, if you do not repay, the lender could take it. With a reverse mortgage, the balance grows each month and your equity goes down.See the full definitionClose. This guide is for homeowners who get offers to refinance, take cash out or “consolidate debt” with their house: it explains how to spot a predatory refinance, what the law bans in high-cost loans and how to cancel in time if you already signed.

To cancel a refinance with a new lender, in writing and without giving a reason

3 business days⁷

To get back what you paid if you cancel

20 days⁵

The longest you may have to cancel if you never got the notice or the disclosures

3 years⁵

Average 30-year fixed rate as of November 5, 2026, for comparing offers

7.18%

What predatory refinancing is

To refinancerefinanceTo refinance is to take out a new mortgage loan to pay off and replace the one you have. According to the CFPB, common reasons are to lower the interest rate, lower the monthly payment or borrow additional money. When you refinance you usually pay closing costs again. If your payment goes down, the CFPB says to understand how much of the drop comes from a lower rate and how much from a longer loan term. In many refinances you have a right to cancel (right of rescission) until midnight of the third business day, but not if you refinance with the same lender without borrowing more.See the full definitionClose is to replace your mortgage with a new one. Often it helps: it lowers the rate or the payment. But it is also the main doorway for predatory lending. The FDIC, the federal agency that supervises many banks, says there is no simple checklist for deciding whether a loan is predatory, and that an expensive but legitimate loan for someone with weak credit has to be told apart from a predatory one.¹

What the FDIC does give is three tell-tale signs. A predatory loan has at least one:¹

1. It is based on your house, not your ability to repay. You get the loan because your home is worth something, even though your income cannot cover the payments. If you fall behind, the lender ends up with your equity. This is called equity stripping.
2. It makes you refinance again and again. High points and fees are charged each time. This is called “loan flipping.”
3. It deceives you. Fraud or deception hides what the loan, or the products added to it, really are.

The law goes straight at the first sign. Under Regulation Z, for dwelling-secured loans covered by the rule, the lender must determine in good faith that you can repay the loan according to its terms. To do that it looks at your income or assets other than the value of the home securing the loan, your debts, alimony and child support, and your credit history, and verifies them with third-party records.² Home equity lines of credit (HELOCs) are not covered by that rule.²

Warning signs in a refinance offer

VA and the CFPB warned veterans about refinance offers that arrive unasked, look official and sound too good to be true. Some provide little benefit while adding thousands of dollars to what you owe. The low rate in the ad may be for a 15-year or adjustable-rate loan, or may require you to pay points. And some lenders push you to refinance just a month or two after your current loan.¹³ Those signs apply to any homeowner, not only veterans.

Be careful with anything “free.” According to the same warning, perks like no out-of-pocket costs, skipped payments or an escrow refund are generally added to the loan and increase the balance.¹³ The CFPB explains that every mortgage has costs: if you are told “no closing costs,” you pay them through a higher rate or as part of the loan, which reduces your equity.¹¹

Also check whether the new loan comes with a prepayment penaltyprepayment penaltyA prepayment penalty is a fee some lenders charge if you pay off all or part of your mortgage early. Not every mortgage has one; if yours does, you agreed to it at closing. According to the CFPB, it usually applies if you pay off the whole balance within a certain number of years, for example when you sell or refinance, and sometimes if you pay a large amount at once; it does not normally apply to small extra principal payments. Many states limit these penalties. The Loan Estimate says whether the loan has one, and the details may be in the note or an addendum.See the full definitionClose: a fee if you pay the loan off early, for example when you sell or refinance again. Not all mortgages have one; it usually applies within a certain number of years, typically three or five. The CFPB suggests asking for a quote on a similar loan without the penalty so you can compare.¹²

Example with real numbers

A refinance pitch, line by line

An example of what an aggressive salesperson might say and what official sources say about each line.

“You pay nothing out of pocket”

The costs are paid through a higher rate or added to the loan.¹¹

“You skip two payments and get your escrow back”

Those perks are generally added to the loan and raise the balance.¹³

“Stop paying your mortgage while we refinance you”

The FDIC lists that as a scam warning sign.¹⁴

“Sign here; we'll fill in the blanks later”

Signing documents with blank spaces is another warning sign.¹⁴

What to do

Do not sign anything you do not understand: when refinancing, you have no obligation to sign.¹⁰

This is a practice example. To compare your real numbers, use your Loan Estimate and the compare loans tool.

Run it with your numbersCompare loans

High-cost loans: the HOEPA protections

The Home Ownership and Equity Protection Act (HOEPA) adds protections when a loan secured by your principal home is very expensive. Regulation Z calls it a “high-cost mortgage” if it meets any of these tests:³

• The rate. The APRannual percentage rate (APR)The annual percentage rate (APR) is a broader measure of the cost of borrowing money than the interest rate. Besides the interest, it includes certain loan charges, such as discount points and some lender fees, spread over the life of the loan and expressed as a yearly percentage. That is why the APR is almost always a little higher than the interest rate. It is useful for comparing offers: if two loans have the same interest rate but a different APR, the one with the higher APR charges more in fees.See the full definitionClose exceeds the average prime offer rate (APOR) for a comparable loan by more than 6.5 percentage points on a first-lien loan, or by more than 8.5 points on a second-lien loan.
• Points and fees. They exceed 5 percent of the total loan amount, above a loan size that is adjusted every year; on smaller loans, the limit is the lesser of 8 percent or a dollar figure that is also adjusted.
• The prepayment penalty. The contract allows one more than 36 months after closing, or of more than 2 percent of the amount prepaid.

The CFPB explains that the APOR is an estimate of the rate people with good credit typically pay for a similar mortgage, and that these protections also apply to refinances and to home equity loans and lines of credit.⁶ They do not apply to reverse mortgages, construction loans for a new home or loans made directly by a state housing finance agency.³

If your loan is high-cost, the lender must give you a notice in conspicuous type that says, in essence: you are not required to complete the agreement just because you received these papers or signed an application; the lender will have a mortgage on your home; and you could lose your home, and everything you have put into it, if you do not meet your obligations.³

On top of that, the lender may not make the loan without written certification that you received counseling on whether it is advisable, from a HUD-approved housing counselorHUD-approved housing counselorA HUD-approved housing counselor works at an agency HUD has approved to provide housing counseling: independent, expert advice customized to your situation about buying a home, renting, a missed mortgage payment, a foreclosure or credit problems. The agencies usually charge little or nothing; many serve in Spanish and offer the homebuyer education course several assistance programs require. They are not lenders or real estate agents and sell you nothing. Your county page lists the official agencies with phone numbers.See the full definitionClose who does not work for the lender. The lender may pay for that counseling.⁴

Any refinance and a high-cost one, side by side

Basic protections

Any refinance on your home

• The lender must assess in good faith whether you can repay.²
• With a new lender, you can cancel in writing within three business days.⁷
• You have no obligation to sign if you do not agree.¹⁰

Extra protections

High-cost mortgage (HOEPA)

• You get a notice saying you could lose your home.³
• You need HUD-approved counseling before signing.⁴
• No balloon payments and no prepayment penalties.³
• You cannot be refinanced into another high-cost loan within a year unless it is in your interest.⁴

If an offer crosses the high-cost limits, the law adds more brakes: use them to think it over calmly.⁶

What a high-cost loan cannot include

Regulation Z bans several classic predatory traps when a loan is high-cost:

• Balloon payment. A balloon paymentballoon paymentA balloon payment is a large, one-time payment at the end of the loan term, higher than the payments before it and sometimes much higher. On the Loan Estimate, "Balloon Payment" means any payment that is more than two times a regular payment. Loans with a balloon payment usually have shorter terms and lower monthly payments that do not pay off the whole debt. If you cannot make the final payment, you may have to refinance or sell the home, or face foreclosure. With limited exceptions, a Qualified Mortgage (QM) cannot have a balloon payment.See the full definitionClose is a payment more than twice a regular payment. It is banned, with exceptions such as a schedule adjusted to seasonal or irregular income, or a bridge loan of 12 months or less.³
• A growing balance. Regular payments that make what you owe go up instead of down.³
• Penalties. Raising your rate after a default, charging prepayment penalties or demanding the whole balance at once, except for fraud, failure to pay or acts that harm the collateral.³
• Refinancing again and again. Within a year, the same lender cannot refinance you into another high-cost loan unless it is in your interest. It also cannot split a loan into pieces to dodge these rules.⁴
• Pushing you into default. Neither the lender nor the broker may recommend that you stop paying the debt the new loan will pay off.⁴
• Extra fees. You cannot be charged to modify or extend the loan or to defer a payment; a late fee cannot exceed 4 percent of the past-due payment or be charged before the end of 15 days from the due date; a payoff statement is generally free and must be provided within five business days; and charges that count as points and fees cannot be financed into the loan.⁴
• Paying the contractor for you. If the loan is for home repairs, the lender cannot pay the contractor directly: payment goes to you, to both of you jointly or, if you choose, through an escrow agent.⁴ If the loan is offered together with the repair job, also read the guide on contractor scams.

The CFPB sums up the spirit of the rule: lenders can no longer add many kinds of fees and charges to the amount you borrow, a practice that led to abuses in the past.⁶

Your right to cancel within three days

If you already signed, there may still be a way out. According to the CFPB, for most mortgages that are not used to buy the home, such as refinances and home equity loans, you have the right of rescissionright of rescissionThe right of rescission lets you cancel certain loans that use your home as collateral, such as a refinance or a home equity loan, after you sign. According to the CFPB, you have until midnight of the third business day (Saturdays count), and that clock starts once three things happen: you sign the promissory note, you receive the Truth in Lending disclosure (usually the Closing Disclosure) and you receive two copies of the notice of your right to cancel. You must give notice in writing. It does not apply to a loan to buy or build your principal home.See the full definitionClose: three business days to cancel, counting Saturdays but not Sundays or holidays. You can cancel for any reason, or no reason at all.⁷

How to cancel a refinance in time

1. 1. Confirm that you have the right

   As soon as possible

   It does not apply if you refinanced with the same lender without borrowing more, if the loan was to buy or build your home, or if the lender is a state agency.⁸

2. 2. Find the notice of your right to cancel

   The day you sign

   The lender must give each owner with the right to cancel two copies; the clock runs from the last of signing, the notice and the disclosures.⁵

3. 3. Notify the lender in writing

   Before midnight of the third business day

   Use the lender's form or a letter; a call or a visit is not enough. Keep a copy.⁷

4. 4. No money is released while the period runs

   During the three days

   Except into an escrow account, the lender does not disburse until the period ends.⁵

5. 5. You get back what you paid

   Within 20 calendar days

   The lien on your home becomes void and you owe no finance charge; your previous loan stays in place.⁵

If there are several owners, one owner canceling counts for all of them.⁵ If you cancel the refinance, you still owe your original loan: it does not go away.⁷

Watch out for papers asking you to “waive” those three days. The regulation allows a waiver only for a genuine personal financial emergency, through a dated statement written by you and signed by all the owners; printed waiver forms are prohibited.⁵

What if you were never given the notice? According to the CFPB, you may still be able to cancel, but you must act within the first three years after signing or before you sell your home, whichever comes first, and you will have to give back the money you borrowed.⁹ The guide to refinancing your mortgage covers the rest of the process, and HELOC vs. cash-out refinance compares the ways to take money out of your home.

When the “refinance” is a trap to take your home

Some schemes are not loans at all. The FDIC describes the “lease-back or repurchase” scam: you are promised that your overdue mortgage will be paid if you sign your deeddeedA deed is the legal document the seller uses to transfer ownership of the home to you. The seller signs it at closing, it lists the names of all the buyers and you receive a copy. Afterward, the settlement agent records it with the county records office; that recording puts the public on notice that you are now the owner. There are several types: a warranty deed gives the most promises about the title, and a quitclaim deed promises nothing. Do not confuse it with a deed of trust, which is the mortgage document.See the full definitionClose over to an “investor” and stay on as a renter with an option to buy the home back. But the new owner can evict you, has no obligation to sell it back and may even take out a new mortgage on your home.¹⁴

In another, someone poses as a broker or lender and hands you “refinance documents” to sign; they are actually deed transfer documents. The FDIC’s warning signs: being asked for a fee in advance, being told to stop paying your mortgage, being asked to transfer ownership of your property or to sign documents with blank lines or spaces.¹⁴

If someone calls offering one of these “rescues,” the guide to impostor calls helps you check who they are. If you already signed over the deed or suspect someone changed it, read deed theft and title fraud and loan modification and foreclosure rescue scams.

Compare the rate you are offered

A simple way to spot an expensive offer is to compare it with the market average. The average 30-year fixed rate was 7.18% as of November 5, 2026. That is not the rate you will get, because it depends on your credit, the loan and the lender, but if you are offered something far above it, ask why.

The APOR used by the high-cost rule is an average of what people with good credit pay for a similar loan.⁶ Always ask for the Loan Estimate in writing and compare the APR, not just the rate. The compare loans tool shows what each offer costs per month and over five years, and the mortgage calculator lets you check the payment with your own numbers.

If this is you

If this is you

Your home is paid off or nearly paid off

Lending based on the home's value instead of ability to repay is exactly what the FDIC calls predatory.¹ The lender must look at your income without counting the house.²

You have a VA loan

VA and the CFPB warn about offers that look official and push you to refinance just months after your last loan.¹³

You are behind and someone offers to “rescue” you

Be wary of anyone asking you to sign over your deed or stop paying your mortgage.¹⁴ A HUD-approved counselor can guide you, often for free.¹⁵

You already signed and changed your mind

If you refinanced with a new lender, notify it in writing before the three business days are up.⁷

Costly mistakes

• Mistake: Signing the same day, without reading, because “the offer expires today.”

  Instead: When refinancing you have no obligation to sign; never sign what you do not understand.¹⁰

• Mistake: Believing a “no cost” refinance is free.

  Instead: The costs are paid through a higher rate or added to the loan.¹¹

• Mistake: Stopping your mortgage payments because the loan salesperson told you to.

  Instead: On high-cost loans that advice is banned, and the FDIC flags it as a scam sign.⁴¹⁴

• Mistake: Refinancing several times within a few months.

  Instead: Each time you pay new points and fees: that is the mark of loan flipping.¹

• Mistake: Signing a paper that waives your three days to cancel.

  Instead: A waiver is only allowed for a real emergency, in your own letter; printed forms are prohibited.⁵

• Mistake: Canceling by phone.

  Instead: Cancellation must be in writing, before midnight of the third business day; keep a copy.⁷

Where to complain and get help

If you think a lender did not follow these rules, you can submit a complaint to the CFPB online or by calling (855) 411-CFPB (2372).¹⁰ Before you sign a loan against your home, or if you already signed and have doubts, a HUD-approved housing counselor gives independent advice, often at little or no cost; the guide to HUD-approved housing counselors explains how to find one.¹⁵ If you need help canceling a loan or lost your home through deception, a free legal aid office can review your situation.

What to do this week

1. If you got an offer, ask for the Loan Estimate in writing and compare the APR with other offers and with the market average.⁶
2. Ask whether the loan has a prepayment penalty and request a quote without one.¹²
3. If you already signed with a new lender, check the date on your notice of right to cancel and, if you want to cancel, send your letter before midnight of the third business day.⁷
4. Do not sign papers with blank spaces or sign your home’s deed over to anyone.¹⁴
5. To get fewer unsolicited offers, call 888-567-8688 or visit www.optoutprescreen.com.[^refi-offers]
6. If you want a second opinion, talk with a HUD-approved housing counselor.¹⁵