If you’re considering home improvements or looking for ways to pay for your child’s college education, consider using your home’s equity – the difference between what you can sell your home and what you owe on your mortgage. To cover costs.
Home financing can take the form of a loan or a line of credit. In the case of a home loan, the lender will provide you with the full loan amount up front, and the home equity line is a source of financing that you can use when needed.
Whenever you are considering a home loan or line of credit, you should review and compare loan plans offered by banks, savings and loan companies, credit unions, and lenders. Shopping can help you get a better deal.
Remember that your home will secure the amount you borrowed through a home loan or line of credit. If you are having trouble paying your debt, the lender may force you to sell your home to pay off the debt.
- Home Equity Loans
- Home equity lines of credit
- Three day cancellation policy
- Harmful Homeownership Practices
Home Equity Loans
A home loan is a fixed-amount loan secured by your home. You pay off the fixed-term loan with the same monthly payments as your original mortgage. If you don’t pay off your loan as agreed, the lender can get your home back.
The amount you can borrow is generally limited to 85% of your principal. The actual loan amount will also depend on your income, credit worthiness, and the market value of your home.
Follow the advice of friends and family with your lenders. Check it out and compare the conditions. Talk to banks, savings and loan companies, loan associations, mortgage lenders, and mortgage brokers. But beware: brokers do not lend money; They help process loans.
Ask the lender you are speaking with to explain the loan plans available to you. If you don’t understand the terms of the loan, ask questions. This can lead to higher costs. It is not enough to know the amount of the monthly payment or the interest rate. The Annual Percentage Rate (APR) of the loan takes into account the points and the cost of financing. Pay close attention to fees, including loan application or handling fees, setup or insurance fees, lender or finance fees, appraisal fees, setup fees, and registration and brokerage fees. These can be points, setup fees, or interest premiums. As points and other fees are added to the loan amount, you pay more to finance them.
Information about your creditworthiness. A credit score is a system by which lenders determine whether a loan is possible. Information about you and your credit history, such as: B. Your bill payment history, account number and type, outstanding payments, debt collection activities, unpaid debts, and account duration are recorded and reported. Recognition. Lenders compare this information with the credit trends of people with similar profiles. The scoring system awards points for each factor that predicts who is most likely to pay the debt. The total number of points (credit score) helps predict your creditworthiness, probability of repayment of the loan and date of payment. For more information on credit worthiness, see Credit Scores Affecting Loan and Insurance Costs.
Negotiate with more than one lender. Don’t be afraid that lenders and brokers will compete for your business by letting them know that you are looking for the best deal. Ask the lender to lower your points, fees, or interest rates. And ask everyone to meet or exceed the conditions of other lenders.
Please read the hearings carefully before signing. If the loan doesn’t meet your expectations or needs, don’t sign it. Negotiate changes or walk away. Basically, you also have the right to cancel the transaction for any reason and without penalty within three days after signing the loan documents. For more information, see the three-day cancellation rule .
Home equity lines of credit
A residential line of credit, also known as a HELOC, is a revolving line of credit similar to a credit card. You can borrow any amount at any time by writing a check or using the credit card associated with your account. You cannot exceed your credit limit. Since HELOC is a line of credit, only the actual amount borrowed will be repaid, not the full amount available. HELOCs may also offer certain tax breaks that are not available for certain types of loans. For more information, contact your accountant or tax advisor.
As with home equity loans, HELOC requires that you use your home as collateral for the loan. This can put your home at risk if your payment is late or if you are unable to make the payment. Large loans, a lump sum usually paid at the end of the loan, can mean borrowing more money to pay off those debts, or they can put your home at risk if you’re not eligible. And when you sell your home, most plans also require you to pay off your line of credit at the same time.
Lenders offer home equity lines of credit in a number of ways. No one loan plan is right for every homeowner. Contact different lenders, compare your options, and choose the home equity line of credit that best meets your needs.
How much money can you borrow with a home equity line of credit?
Depending on your creditworthiness and the amount you owe, you can borrow up to 85% of your appraised value minus the amount you owe on your first mortgage. Ask the lender if there is a minimum withdrawal requirement when opening an account and if there is a minimum or maximum withdrawal requirement when opening an account. Ask how you can spend money on a line of credit: checks, credit cards, or both.
You need to know if your home equity plan has a specific expiration date, a payment period during which you can withdraw funds from your account. After the payment period is over, you can extend your credit limit. If you can’t, you won’t be able to borrow additional funds. Some plans may require you to pay the remaining balance. In other cases, you may be able to pay off the remaining balance over a period of time.
What is the interest rate?
Unlike a home equity loan, the APRC does not consider the financial points or costs associated with a home equity line of credit. The annual interest rate on stocks shown is based solely on the interest rate.
Find out the interest rates available in the fixed rate plan. Most HELOCs have variable fees. These rates may offer lower monthly payments initially, but payments are subject to change and increase for the remainder of the payment period. Fixed rates, if available, may initially be slightly higher than variable rates, but monthly payments are the same for the life of the credit line.
If you are considering a floating interest rate, review and compare the terms. Check the limit regularly – the limit of simultaneous changes in interest rates. Also check the term limit: the interest rate limit changes during the term of the loan. Lenders use an index, such as a base rate, to determine how much interest rates should go up or down. Ask the lender which index is used, how much, and how often it can change. Verification Margin – The amount added to the index that specifies the interest to be calculated. Also ask if you can convert your floating rate loan to a fixed rate later.
Sometimes lenders offer a temporary discount rate, an unusually low interest rate that only lasts for an initial period of, say, six months. The monthly payments will also be lower during this period. However, once the introductory phase is complete, the interest rate (and payments) will reach the true market level (index plus margin). Ask if the rate offered is “discounted” and, if so, find out how the rate is determined at the end of the repayment period and what your payments may be during that time.
What is the cost before graduation?
When you buy a home equity line of credit, you pay many of the same fees you paid for your original mortgage. These include: tuition, title search, valuation, legal fees, and points (percentage of amount borrowed). These costs can add significantly to the cost of the loan, especially if you end up borrowing little from your line of credit. Try negotiating with your lenders to see if they will cover some of these costs.
What are the administrative costs?
In addition to the initial closing costs, some lenders charge a fee for the term of the loan. This can include an annual subscription fee or a registration fee that is paid regardless of how you use your account and / or transaction fees charged on each loan. These fees are added to the total cost of the loan.
What are the loan repayment terms?
If you have a loan and your line of credit is variable, your payments can change even if you have the loan on your account. Find out how often and to what extent your payments can change. Ask if you pay both principal and interest, or just interest. Even if you are paying the principal, ask if your monthly payment covers the full amount borrowed or if you owe an additional principal payment at the end of the loan. In addition, you can obtain information on late payment penalties and the conditions under which a creditor can default and request a full refund immediately.
What are the repayment conditions at the end of the loan?
Ask if you may owe a high (balloon) fee at the end of the term. If you can and are not sure you can afford the ball, you can renegotiate the terms of the refund. When you get a loan, it tells you how to extend your plan or refinance your outstanding balance. Ask the lender to agree in writing in advance to refinance the loan balance or, if necessary, to extend the repayment period.
What collateral does the loan contain?
One of the best guarantees you have is the Federal Loan Law. Lenders are required by law to inform you of the terms and costs of the loan plan upon receipt of your application. Lenders must disclose an annual interest rate, payment terms, and fees to open or use an account, such as: B. Prices, credit reports, or legal fees. Lenders must also inform you of all the characteristics of floating interest rates and provide you with a brochure that describes the general characteristics of their property policies.
The Truth in Lending Act also prevents you from changing your account terms (as well as the floating rate feature) before the plan is opened. If you leave your plan due to a change in terms and conditions, you should receive a refund of all fees paid.
Generally, once a capital plan has been opened and the agreed payment has been made, the lender cannot cancel the plan, accelerate the required balance, or change the terms of the loan account. The lender can make advance payments to your account during the period in which the interest rate exceeds the maximum interest limit specified in the contract, if the contract allows it.
Please read the hearings carefully before signing. If HELOC does not meet your expectations or needs, do not sign the loan. Negotiate changes or walk away. As with a home loan, you also have the right to complete the transaction for any reason and without penalty within three days of signing the loan documents. For more information, see the three-day cancellation rule .
Three day cancellation policy
Federal law gives you three days to reconsider a signed loan agreement and cancel it without penalty. You can cancel for any reason, but only if you are using your primary residence, be it a house, apartment, mobile home, or barge, for security reasons and not as a second home or second home.
In accordance with the right of withdrawal, you have until midnight of the third business day to cancel your credit transaction. The first day starts after:
- Sign a loan agreement;
- You will receive a genuine loan disclosure form that contains important information about your loan agreement, including the annual interest rate, the cost of financing, the amount financed, and the payment schedule. is
- You will receive two copies of the loan information that explain your right of withdrawal.
For cancellation purposes, business days include Saturdays but not Sundays or holidays. For example, if the events listed above are on a Friday, you have until midnight on the following Tuesday to cancel them.
No contractual action can be taken during this waiting period. The lender cannot provide the money for the loan. If it is a mortgage loan, the contractor may not provide the materials and you may not be able to start work.
If you want to cancel
If you wish to cancel you must notify the lender in writing. It is not possible to terminate the contract by phone or in person at a credit institution. Written notification must be sent by email on or before midnight on the third business day.
If you cancel, your home security deposit will also be kept and you will not be responsible for any amount, including finance charges. The lender has 20 days to return the money or real property you paid for in the transaction and issue a security on your home. If you have received money or property from a lender, you can keep it until the lender provides proof that your home is no longer used as collateral and returns the money you paid. Then you must offer the lender a refund of your money or property. If the lender does not request money or property within 20 days, they can keep it.
If you have a serious personal financial situation, such as B. Damage to your home from a storm or other natural disaster, you may waive your right to cancel and withdraw your three-day notice. To waive your right, you must provide the lender with a written statement of urgency and waive your right of withdrawal. The affidavit must be dated and signed by you and all other co-owners of the home.
The federal three-day claim rule does not apply in all situations where you use your home for safety reasons. The exceptions are:
- You are applying for a loan to buy or build your primary residence
- You refinance your loan from the same lender that has it and do not borrow additional funds.
- The lender is a government agency.
In such situations, you may have a different right of withdrawal depending on national or local laws.
Harmful Homeownership Practices
You could lose your home and money if you borrow from unscrupulous lenders who offer you an expensive mortgage. Some lenders target older homeowners with low income or credit problems and then try to take advantage of deceptive, dishonest, or illegal practices. Look for:
- Loan extension : The lender recommends that you refinance the loan repeatedly and borrow more often. Every time you refinance, you pay extra fees and interest points. Increase your debt.
- Insurance package : The lender adds credit insurance or other insurance products to the loan that you may not need.
- Baits and Invoices – The lender offers a variety of loan terms on demand, so they insist that you accept a higher interest rate when signing up to complete the transaction.
- Home Equity Payment – The lender makes a loan based on your home’s equity, not your ability to pay. If you can’t make the payment, you could lose your home.
- Non- traditional products – the lender can offer non-traditional products when buying a mortgage:
- For example, lenders may offer loans where the minimum payment does not cover the principal and interest owed. This increases your loan balance and possibly your monthly payments. Many of these loans have a variable interest rate that can further increase your monthly payment as the interest rate increases.
- Loans can also have low monthly payments but high lump sums at the end of the loan term. If you can’t afford a prom or refinance, you risk foreclosure and losing your home.
- Mortgage abuse – The lender charges you unreasonable fees, such as: late fees that are not allowed in your loan agreement or the law, or insurance fees incurred by the lender when you have secured your property. The lender does not provide you with accurate or complete bank statements and payment numbers, making it difficult to know how much you have paid or how much you owe. You can pay more than you owe.
- Home loan – Contractor knocks on door and proposes to install a new roof or remodel the kitchen at a reasonable cost. This means that you are interested, but cannot afford it. Well, you can get a loan from a lender you know. You accept the project and the entrepreneur starts working. At some point after starting cooperation with a contractor, you will be asked to sign various documents. The documents may be blank or the lender may ask you to sign before you have time to read the information received. The contractor threatens to leave an unfinished case at your home if you don’t sign it. Sign the documents. Only later do you realize that these are the documents you signed as a home loan. Interest rates, points, and fees tend to be very high. Worse still, the work on your home is not being done properly or has not yet been completed, and the contractor whose loan originator may have received the payment is not interested in doing his job satisfactorily.
Some of these practices violate federal loan laws that regulate information on loan terms. Discrimination on the grounds of age, sex, marital status, race, or national origin; and repayment of the loan. You may also have additional rights under state law to take legal action.