|
| Home Equity Loans: Don't Risk Your Home |
A home equity loan can provide you with a large amount of cash by using your home
as collateral for a loan. The danger is if you cannot make your monthly payments
you could very well lose your home. Home equity lenders will allow you to borrow
up to 85% of the appraised value of your home less the amount outstanding on your
first mortgage.
Interest Rates
- Compare the APR which indicates the cost of credit on an annual basis.
- Some loans may offer a low introductory rate but increases after an
initial period.
- Check if the interest rate is variable or fixed.
- Fixed interest rates may be higher, but provide a stable monthly payment schedule.
- If a variable rate is offered, check the periodic and annual cap. This is
the limit of interest rate change over a period of time.
- The lower the APR, the lower the cost of borrowing.
Upfront Closing Costs
- These fees are similar to the closing costs of your original mortgage.
- Includes application fee, title search, appraisal and legal fees and points (a percentage of the borrowing amount as a fee)
- These costs will greatly increase the cost of borrowing.
Continuing Costs
- Annual or participation fees which extend over the life of the loan.
- Transaction fees which are charged each time you borrow money.
Repayment Terms
- Payment amounts may change under a variable interest rate.
- Determine if you are paying back principle or interest or both.
- Verify what late payment penalties exist.
- You may have to pay a higher interest rate if you miss a payment or pay late.
- Under what conditions can the lender consider your loan in default.
- Prepayment penalties may make getting out of the loan too expensive. Try to negotiate this penalty out of your loan.
Balloon Payments
- Find out if a large balloon payment may be due at the end of the loan.
- Negotiate ahead of time with the lender to refinance this balance or extend the repayment schedule.
Negotiate
- If you don't like the APR, a fee or a term of the loan, ask for it to be changed. It doesn't hurt to ask.
Your Rights
- The Truth in Lending Act requires a lender to disclose all fees and costs associated with the loan.
- You have three days after signing to cancel your loan.
Avoid Any Lender who
- Advises you to falsify information on your application
- Persuades you to apply for a more money than you need
- Forcing monthly payments upon you that you can't afford
- Does not provide full disclosure of the loan details
- Wants you to sign blank forms
- Misrepresents the kind of credit you are getting
- Sells you one set of loan terms but the documents read to the contrary
- Does not provide copies of documents you have signed
|
|
|
