Disclosures from lenders

The federal Truth in Lending Act requires lenders to disclose the important terms and costs of their home equity plans, including the APR, miscellaneous charges, the payment terms, and information about any variable-rate feature. And in general, neither the lender nor anyone else may charge a fee until after you have received this information. You usually get these disclosures when you receive an application form, and you will get additional disclosures before the plan is opened. If any term (other than a variable-rate feature) changes before the plan is opened, the lender must return all fees if you decide not to enter into the plan because of the change.

When you open a home equity line, the transaction puts your home at risk. If the home involved is your principal dwelling, the Truth in Lending Act gives you 3 days from the day the account was opened to cancel the credit line. This right allows you to change your mind for any reason. You simply inform the lender in writing within the 3-day period. The lender must then cancel its security interest in your home and return all fees--including any application and appraisal fees--paid to open the account.

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This article is from the Federal Reserve website

(Febuary 2005)

Home-Equity Loans - A description from the Consumer Action Website

Consider carefully before taking out a home equity loan. Although this type of loan might let you take tax deductions that you could not take with other types of loans, they reduce the equity you have built up in your house. If you are unable to make payments, you could lose your home.

Home equity loans can either be a revolving line of credit or a one-time, closed-end loan. Revolving credit lets you choose when and how often to borrow against the equity in your home. In a closed-end loan, you receive a lump sum for a particular purpose, such as remodeling or tuition. Apply for a home equity loan through a bank or credit union first. These loans are likely to cost less than those offered by finance companies.

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This article is from one of the Federal Citizens Information Center's webpages

(Febuary 2005)

What should you look for when shopping for a plan?

If you decide to apply for a home equity line of credit, look for the plan that best meets your particular needs. Read the credit agreement carefully, and examine the terms and conditions of various plans, including the annual percentage rate (APR) and the costs of establishing the plan. The APR for a home equity line is based on the interest rate alone and will not reflect the closing costs and other fees and charges, so you'll need to compare these costs, as well as the APRs, among lenders.

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This article is from one of The Federal Reserve Board's webpages

(Febuary 2005)

Is a Home Equity Credit Line Right for you?

If you need to borrow money, home equity lines may be one useful source of credit. Initially at least, they may provide you with large amounts of cash at relatively low interest rates. And they may provide you with certain tax advantages unavailable with other kinds of loans. (Check with your tax adviser for details.)

At the same time, home equity lines of credit require you to use your home as collateral for the loan. This may put your home at risk if you are late or cannot make your monthly payments. In addition, because home equity loans give you relatively easy access to cash, you might find you borrow money more freely.

Remember too, there are other ways to borrow money from a lending institution. For example, you may want to explore second mortgage installment loans. Although these plans also place an additional mortgage on your home, second mortgage money usually is loaned in a lump sum, rather than in a series of advances made available by writing checks on an account. Also, second mortgages usually have fixed interest rates and fixed payment amounts.

You also may want to explore borrowing from credit lines that do not use your home as collateral. These are available with your credit cards or with unsecured credit lines that let you write checks as you need the money. In addition, you may want to ask about loans for specific items, such as cars or tuition.

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This article is from the Indiana Department of Financial Institutions' website

(Febuary 2005)

Protecting Yourself

You can protect yourself against losing your home to inappropriate lending practices. Here's how:

Home Equity Loan Don'ts:

• Agree to a home equity loan if you don't have enough income to make the monthly payments.


• Sign any document you haven't read or any document that has blank spaces to be filled in after you sign.


• Let anyone pressure you into signing any document.


• Agree to a loan that includes credit insurance or extra products you don't want.


• Let the promise of extra cash or lower monthly payments get in the way of your good judgment about whether the cost you will pay for the loan is really worth it.


• Deed your property to anyone. First consult an attorney, a knowledgeable family member, or someone else you trust.
  

Home Equity Loan Do's:

• Ask specifically if credit insurance is required as a condition of the loan. If it isn't, and a charge is included in your loan and you don't want the insurance, ask that the charge be removed from the loan documents. If you want the added security of credit insurance, shop around for the best rates.


• Keep careful records of what you've paid, including billing statements and canceled checks. Challenge any charge you think is inaccurate.


• Check contractors' references when it is time to have work done in your home. Get more than one estimate.


• Read all items carefully. If you need an explanation of any terms or conditions, talk to someone you can trust, such as a knowledgeable family member or an attorney. Consider all the costs of financing before you agree to a loan.

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This article is a segment from the FTC's webpage Home Equity Loans: Borrowers Beware

(Febuary 2005)