Thinking of taking out a home equity loan? Wondering if itís a smart idea?

We asked the Federal Trade Commission for help in what to watch out for.


We know: Tips on Home Equity Loans

Whatís a home equity loan?

When you borrow money and put up the equity in your house as collateral, itís called a home equity loan. These loans can be easier and larger than other loans you may be able to get, but they also put your home at risk.

What protection to I have against losing my home with a home equity loan?

The most important protection you have is to insure you get an honest lender and that you are capable of paying back the loan under the terms you agree to.


YOU HAVE 3 DAYS TO CANCEL A HOME EQUITY LOAN


You should know that a federal credit law gives you three days to reconsider a signed credit agreement and cancel the deal without penalty. Your "right to rescind" or "right to cancel" is guaranteed by the Truth In Lending Act.


You can rescind for any reason but only if you are using your principal residence-whether it is a condominium, mobile home, or house boatóas collateral, not a vacation or second home.

What should I be aware of before I take out a home equity loan?

Before you take out any loan, you should comparison shop.


For any loan you are considering, you should:

  • Talk with several lenders, not just one, and compare what they are offering.
  • Compare the interest rates and length of the loan.
  • Ask for all the specific charges and fees, so you can compare them. These include: the application or loan processing fee, origination or underwriting fee, lender or funding fee, appraisal fee, document preparation and recording fees, and broker fees which may be quoted as points, origination fees, or interest rate add-on. If points and other fees are added to your loan amount, you'll pay more to finance them.
  • Before you commit to a loan, negotiate with more than one lender. Make lenders and brokers compete for your business by letting them know that you're shopping for the best deal. Ask each lender to lower the points, fees or the interest rate. And ask each to meet - or beat - the terms of the other lenders.
  • Read the loan papers carefully before you sign to be sure the deal on paper is the one you bargained for.

What are the particular things to watch out for with home equity loans?

Homeowners should always be careful when putting their homes on the line for a loan. There are a number of abusive or exploitive lenders targeting homeowners who are elderly, low income or have poor credit.


Protect yourself. Donít:

  1. Agree to a home equity loan if you don't have enough income to make the monthly payments.
  2. Sign any document you haven't read or any document that has blank spaces to be filled in after you sign.
  3. Let anyone pressure you into signing any document.
  4. Agree to a loan that includes credit insurance or extra products you don't want.
  5. 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.
  6. Deed your property to anyone. First consult an attorney, a knowledgeable family member, or someone else you trust.


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