Home equity lines may be one useful source of credit if you need to borrow
money. They may provide you with large amounts of cash at relatively low
interest rates. They may also provide you with certain tax advantages
unavailable with other kinds of loans. You should check with your tax adviser
for details.
Home equity lines of credit require you to use your home as collateral for the
loan. This could put your home at risk if you are late or cannot make your
monthly payments. Loans with a large final payment may lead you to borrow more
money to pay off this debt, or they may put your home in jeopardy if you cannot
qualify for refinancing. And, if you sell your home, most plans require you to
pay off your credit line at that time. In addition, because home equity loans
give you relatively easy access to cash, you might find you borrow money more
freely.
There are other ways to borrow money from a lending institution. You may want to
also 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.
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.
Shop around for a home loan or mortgage to help you to get the best financing deal. A mortgage—whether it's a home purchase, a refinancing, or a home equity loan—is a product, so the price and terms may be negotiable. Compare all the costs involved in obtaining a mortgage. Shopping, comparing, and negotiating may save you thousands of dollars in loan expenses.
The Federal Truth in Lending Act requires lenders to inform you about the
terms and costs of the plan at the time you are given an application. Lenders
must disclose the APR and payment terms and must inform you of charges to open
or use the account, such as an appraisal, a credit report, or attorneys' fees.
Lenders also must tell you about any variable-rate feature and give you a
brochure describing the general features of home equity plans.
The Truth in Lending Act also protects you from changes in the terms of the
account (other than a variable-rate feature) before the plan is opened. If you
decide not to enter into the plan because of a change in terms, all fees you
paid earlier must be returned to you.
Because of the fact that your home is at risk when you open a home equity credit
account, you have three days to cancel the transaction, for any reason. To
cancel, you must inform the lender in writing. Following that, your credit line
must be cancelled and all fees you have paid must be returned.
Once your home equity plan is opened, if you pay as agreed, the lender, in most
cases, may not terminate your plan, accelerate payment of your outstanding
balance, or change the terms of your account. The lender may halt credit
advances on your account during any period in which interest rates exceed the
maximum rate cap in your agreement, if your contract permits this practice.
Federal Trade Commission - Loan information before you apply for any loan.
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