Harmful Home Equity Practices

This is the last of four planned posts on the subject of home equity loans.

We’re using a four part article published by the Federal Trade Commission (FTC) on their Consumer Information website. You can and should visit this site, not only to view this article but to see the other topics of information that pertain to many of us. Click here to visit.

Four part Series:

Home Equity Loans and Credit Lines – Introduction

If you’re thinking about making some home improvements or looking at ways to pay for your child’s college education, you may be thinking about tapping into your home’s equity — the difference between what your home could sell for and what you owe on the mortgage — as a way to cover the costs.

Loan or Line of Credit

Home equity financing can be set up as a loan or a line of credit. With a home equity loan, the lender advances you the total loan amount upfront, while a home equity credit line provides a source of funds that you can draw on as needed.

Shop and Compare

When considering a home equity loan or credit line, shop around and compare loan plans offered by banks, savings and loans, credit unions, and mortgage companies. Shopping can help you get a better deal.

Stay Within Your Budget

Remember that your home secures the amount that you borrow through a home equity loan or line of credit. If you don’t pay your debt, the lender may be able to force you to sell your home to satisfy the debt.

Harmful Home Equity Practices

You could lose your home and your money if you borrow from unscrupulous lenders who offer you a high-cost loan based on the equity you have in your home. Certain lenders target homeowners who are older or who have low incomes or credit problems — and then try to take advantage of them by using deceptive, unfair, or other unlawful practices. Be on the lookout for:

  • Loan Flipping: The lender encourages you to repeatedly refinance the loan and often, to borrow more money. Each time you refinance, you pay additional fees and interest points. That increases your debt.
  • Insurance Packing: The lender adds credit insurance, or other insurance products that you may not need to your loan.
  • Bait and Switch: The lender offers one set of loan terms when you apply, then pressures you to accept higher charges when you sign to complete the transaction.
  • Equity Stripping: The lender gives you a loan based on the equity in your home, not on your ability to repay. If you can’t make the payments, you could end up losing your home.
  • Non-traditional Products: The lender may offer non-traditional products when you are shopping for a home equity loan:
    • For example, lenders may offer loans in which the minimum payment doesn’t cover the principal and interest due. This causes your loan balance, and eventually your monthly payments, to increase. Many of these loans have variable interest rates, which can raise your monthly payment more if the interest rate rises.
    • Loans also may feature low monthly payments, but have a large lump-sum balloon payment at the the end of the loan term. If you can’t make the balloon payment or refinance, you face foreclosure and the loss of your home.
  • Mortgage Servicing Abuses: The lender charges you improper fees, like late fees not allowed under the mortgage contract or the law, or fees for lender-placed insurance, even though you maintained insurance on your property. The lender doesn’t provide you with accurate or complete account statements and payoff figures, which makes it almost impossible for you to determine how much you have paid or how much you owe. You may pay more than you owe.
  • The “Home Improvement” Loan: A contractor calls or knocks on your door and offers to install a new roof or remodel your kitchen at a price that sounds reasonable. You tell him you’re interested, but can’t afford it. He tells you it’s no problem — he can arrange financing through a lender he knows. You agree to the project, and the contractor begins work. At some point after the contractor begins, you are asked to sign a lot of papers. The papers may be blank or the lender may rush you to sign before you have time to read what you’ve been given. The contractor threatens to leave the work on your house unfinished if you don’t sign. You sign the papers. Only later, you realize that the papers you signed are a home equity loan. The interest rate, points and fees seem very high. To make matters worse, the work on your home isn’t done right or hasn’t been completed, and the contractor, who may have been paid by the lender, has little interest in completing the work to your satisfaction.

Some of these practices violate federal credit laws dealing with disclosures about loan terms; discrimination based on age, gender, marital status, race, or national origin; and debt collection. You also may have additional rights under state law that would allow you to bring a lawsuit.

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The Three-Day Cancellation Rule (Home Equity Loans)

This is the third of four planned posts on the subject of home equity loans.

We’re using a four part article published by the Federal Trade Commission (FTC) on their Consumer Information website. You can and should visit this site, not only to view this article but to see the other topics of information that pertain to many of us. Click here to visit.

Four part Series:

Home Equity Loans and Credit Lines – Introduction

If you’re thinking about making some home improvements or looking at ways to pay for your child’s college education, you may be thinking about tapping into your home’s equity — the difference between what your home could sell for and what you owe on the mortgage — as a way to cover the costs.

Loan or Line of Credit

Home equity financing can be set up as a loan or a line of credit. With a home equity loan, the lender advances you the total loan amount upfront, while a home equity credit line provides a source of funds that you can draw on as needed.

Shop and Compare

When considering a home equity loan or credit line, shop around and compare loan plans offered by banks, savings and loans, credit unions, and mortgage companies. Shopping can help you get a better deal.

Stay Within Your Budget

Remember that your home secures the amount that you borrow through a home equity loan or line of credit. If you don’t pay your debt, the lender may be able to force you to sell your home to satisfy the debt.

The Three-Day Cancellation Rule

Federal law gives you three days to reconsider a signed credit agreement and cancel the deal without penalty. You can cancel for any reason but only if you are using your principal residence — whether it’s a house, condominium, mobile home, or house boat — as collateral, not a vacation or second home.

Under the right to cancel, you have until midnight of the third business day to cancel the credit transaction. Day one begins after:

  • you sign the credit contract;
  • you get a Truth in Lending disclosure form containing key information about the credit contract, including the APR, finance charge, amount financed, and payment schedule; and
  • you get two copies of a Truth in Lending notice explaining your right to cancel.

For cancellation purposes, business days include Saturdays, but not Sundays or legal public holidays. For example, if the events listed above take place on a Friday, you have until midnight on the next Tuesday to cancel.

During this waiting period, activity related to the contract cannot take place. The lender may not deliver the money for the loan. If you’re dealing with a home improvement loan, the contractor may not deliver any materials or start work.

If You Decide to Cancel

If you decide to cancel, you must tell the lender in writing. You may not cancel by phone or in a face-to-face conversation with the lender. Your written notice must be mailed, filed electronically, or delivered, before midnight of the third business day.

If you cancel the contract, the security interest in your home also is cancelled, and you are not liable for any amount, including the finance charge. The lender has 20 days to return all money or property you paid as part of the transaction and to release any security interest in your home. If you received money or property from the creditor, you may keep it until the lender shows that your home is no longer being used as collateral and returns any money you have paid. Then, you must offer to return the lender’s money or property. If the lender does not claim the money or property within 20 days, you may keep it.

If you have a bona fide personal financial emergency — like damage to your home from a storm or other natural disaster — you can waive your right to cancel and eliminate the three-day period. To waive your right, you must give the lender a written statement describing the emergency and stating that you are waiving your right to cancel. The statement must be dated and signed by you and anyone else who shares ownership of the home.

The federal three day cancellation rule doesn’t apply in all situations when you are using your home for collateral. Exceptions include when:

  • you apply for a loan to buy or build your principal residence
  • you refinance your loan with the same lender who holds your loan and you don’t borrow additional funds
  • a state agency is the lender for a loan.

In these situations, you may have other cancellation rights under state or local law.

Was This Helpful?

We hope this post helpful. Let us know by leaving a comment. Tell us what topics would most help you. We’d love to hear from you.

Thank you for reading the Tri-Town Apple.

Home Equity Line of Credit

This is the second of four planned posts on the subject of home equity loans.

We’re using a four part article published by the Federal Trade Commission (FTC) on their Consumer Information website. You can and should visit this site, not only to view this article but to see the other topics of information that pertain to many of us. Click here to visit.

Four part Series:

Home Equity Loans and Credit Lines – Introduction

If you’re thinking about making some home improvements or looking at ways to pay for your child’s college education, you may be thinking about tapping into your home’s equity — the difference between what your home could sell for and what you owe on the mortgage — as a way to cover the costs.

Loan or Line of Credit

Home equity financing can be set up as a loan or a line of credit. With a home equity loan, the lender advances you the total loan amount upfront, while a home equity credit line provides a source of funds that you can draw on as needed.

Shop and Compare

When considering a home equity loan or credit line, shop around and compare loan plans offered by banks, savings and loans, credit unions, and mortgage companies. Shopping can help you get a better deal.

Stay Within Your Budget

Remember that your home secures the amount that you borrow through a home equity loan or line of credit. If you don’t pay your debt, the lender may be able to force you to sell your home to satisfy the debt.

Home Equity Line of Credit

A home equity line of credit — also known as a HELOC — is a revolving line of credit, much like a credit card. You can borrow as much as you need, any time you need it, by writing a check or using a credit card connected to the account. You may not exceed your credit limit. Because a HELOC is a line of credit, you make payments only on the amount you actually borrow, not the full amount available. HELOCs also may give you certain tax advantages unavailable with some kinds of loans. Talk to an accountant or tax adviser for details.

Like home equity loans, HELOCs require you to use your home as collateral for the loan. This may put your home at risk if your payment is late or you can’t make your payment at all. Loans with a large balloon payment — a lump sum usually due at the end of a loan — may lead you to borrow more money to pay off this debt, or they may put your home in jeopardy if you can’t qualify for refinancing. And, if you sell your home, most plans require you to pay off your credit line at the same time.

HELOC FAQs  Continue reading

Home Equity Loans

This is the first of four planned posts on the subject of home equity loans.

We’re using a four part article published by the Federal Trade Commission (FTC) on their Consumer Information website. You can and should visit this site, not only to view this article but to see the other topics of information that pertain to many of us. Click here to visit.

Four part Series:

Home Equity Loans and Credit Lines – Introduction

If you’re thinking about making some home improvements or looking at ways to pay for your child’s college education, you may be thinking about tapping into your home’s equity — the difference between what your home could sell for and what you owe on the mortgage — as a way to cover the costs.

Loan or Line of Credit

Home equity financing can be set up as a loan or a line of credit. With a home equity loan, the lender advances you the total loan amount upfront, while a home equity credit line provides a source of funds that you can draw on as needed.

Shop and Compare

When considering a home equity loan or credit line, shop around and compare loan plans offered by banks, savings and loans, credit unions, and mortgage companies. Shopping can help you get a better deal.

Stay Within Your Budget

Remember that your home secures the amount that you borrow through a home equity loan or line of credit. If you don’t pay your debt, the lender may be able to force you to sell your home to satisfy the debt.

Home Equity Loans

A home equity loan is a loan for a fixed amount of money that is secured by your home. You repay the loan with equal monthly payments over a fixed term, just like your original mortgage. If you don’t repay the loan as agreed, your lender can foreclose on your home. Continue reading