High-Fee Loans (HOEPA/Section 32 Mortgages)
Home Equity Credit Lines
Home Sweet Home Improvement.
Mortgage Servicing: Making Sure Your Payments Count
Need a Loan? Think Twice About Using Your Home As Collateral
Your Home on the Loan Line is Risky Business
Shopping for Home Equity Loan?
Looking for the Best Mortgage
Understanding the Home Mortgage Process
Understanding your Rights to
The Mortgage Application
Stop and What to Look for
Mortgage Cycling Revealed
Build Massive Wealth With Foreclosures.
How To Build Your Free House
Own Real Estate With No Money Down
Make Your Next Home A Resort
Home Buyer Defense Guide
Get Started In Real Estate Investing!
FACTS FOR CONSUMERS
Need a Loan?
Think Twice About Using Your Home as Collateral
need money to pay bills or make home improvements, and
think the answer is in refinancing, a second mortgage,
or a home equity loan, consider your options carefully.
If you can't make the required payments, you could lose
your home as well as the equity you've built up. That's
why it's important not to let anyone talk you into using
your home to borrow money you may not be able to afford
to pay back. Not all loans or lenders are created equal.
Some unscrupulous lenders target older or low-income
homeowners and those with credit problems. These lenders
may offer loans based on the equity in your home, not on
your ability to repay the loan. High interest rates and
credit costs can make it very expensive to borrow money,
even if you use your home as collateral.
to an attorney, financial advisor, or someone else you
trust before you make any decisions about borrowing
money. Non-profit credit and housing counseling services
also can be useful in helping you manage your credit and
make smart decisions about loans.
Early Warning Signs
Avoid any lender who:
- tells you to
falsify information on the loan application. For
example, stay away from a lender who tells you
to say that your income is higher than it is.
- pressures you
into applying for a loan or applying for more
money than you need.
- pressures you
into accepting monthly payments you can't make
or could have trouble making.
- fails to
provide required loan disclosures or tells you
not to read them.
the kind of credit you're getting, like calling
a one-time loan a line of credit.
- promises one
set of terms when you apply, and gives you
another set of terms to sign — with no
legitimate explanation for the change.
- tells you to
sign blank forms — and says they'll fill in the
- says you can't
have copies of the documents that you've signed.
can take some steps to protect your home and the equity
you've built up in it. Here's how.
Shop Around. Costs can vary greatly.
Contact several lenders — including banks, savings and
loans, credit unions, and mortgage companies. Ask each
lender about the best loan you would qualify for.
The annual percentage
The APR is the single
most important thing to compare when you shop for a
loan. It takes into account not only the interest
rate, but also points (one point equals one percent
of the loan amount), mortgage broker fees, and
certain other credit charges the lender requires the
borrower to pay, expressed as a yearly rate.
Generally, the lower the APR, the lower the cost of
your loan. Ask if the APR is fixed or adjustable —
that is, will it change? If so, how often and how
Points and fees.
Ask about points and other fees that you'll be
charged. These charges may not be refundable if you
refinance or pay off the loan early. And if you
refinance, you may pay more points. Points usually
are paid in cash at closing, but may be financed. If
you finance the points, you'll have to pay
additional interest, increasing the total cost of
The term of the loan.
How many years will you make payments on the loan?
If you're getting a home equity loan that
consolidates credit card debt and other shorter-term
loans, remember that the new loan may require you to
make payments for a longer time.
The monthly payment.
What's the amount? Will it stay the same or change?
Find out if your monthly payment will include
escrows for taxes and insurance.
This is a large payment usually at the end of the
loan term, often after a series of lower monthly
payments. When the balloon payment is due, you must
come up with the money. If you can't, you may need
another loan, which means new closing costs, as well
as points and fees.
Prepayment penalties are extra fees that may be due
if you pay off the loan early by refinancing or
selling your home. These fees may force you to keep
a high-rate loan by making it too expensive to get
out of the loan. If your loan includes a prepayment
penalty, understand the penalty you would have to
pay. Ask the lender if you can get a loan without a
prepayment penalty, and what that loan would cost.
Then decide what's right for you.
Whether the interest
rate for the loan will increase if you default.
increased interest rate provision says that if you
miss a payment or pay late, you may have to pay a
higher interest rate for the rest of the loan term.
Try to negotiate this provision out of your loan
Whether the loan
includes charge for any type of voluntary credit
insurance, like credit life, disability, or
Will the insurance premiums be financed as part of
the loan? If so, you'll pay additional interest and
points, further increasing the total cost of the
loan. How much lower would your monthly loan payment
be without the credit insurance? Will the insurance
cover the length of your loan and the full loan
amount? Before you decide to buy voluntary credit
insurance from a lender, think about whether you
really need the insurance and check with other
insurance providers about their rates.
also want to ask each lender to provide, as soon as
possible, a written Good Faith Estimate that lists all
charges and fees you must pay at closing. Ask for a
Truth in Lending Disclosure, too. It states the monthly
payment, the APR and other loan terms. Although lenders
are not always required to provide these estimates,
they're very helpful because they make it easier to
compare terms from different lenders.
After Choosing a Lender
It never hurts to ask if the lender will lower the
APR, take out a charge you don't want to pay, or
remove a loan term that you don't like.
Ask the lender for a
blank copy of the form(s) you will sign at closing.
While they don't have to give you blank forms, most
legitimate lenders will. Take the forms home and
review them with someone you trust. Ask the lender
about items you don't understand.
Ask the lender to give
you copies of the actual documents
that you'll be asked to sign as soon as possible.
While a lender may not be required to give you all
of the actual filled-in documents before closing, it
doesn't hurt to ask.
Be sure you can afford
Figure out whether your monthly income is enough to
cover each monthly payment, in addition to your
other monthly bills and expenses. If it isn't, you
could lose your home — and your equity — through
foreclosure or a forced sale.
If you are refinancing
a first mortgage, ask about escrow services.
Ask if the loan's monthly payment includes an escrow
amount for property taxes and homeowner's insurance.
If not, be sure to budget for those amounts, too.
Before you sign anything,
ask for an explanation of any dollar amount, term or
condition that you don't understand.
Ask if any of the loan terms you were promised
before closing have changed. Don't sign a loan agreement
if the terms differ from what you understood them to be.
For example, a lender should not promise a specific APR
and then — without good reason — increase it at closing.
If the terms are different, negotiate for what you were
promised. If you can't get it, be prepared to walk away
and take your business elsewhere.
Before leaving the lender,
make sure you get a copy of the documents you signed.
They contain important information about your rights and
Don't initial or sign anything
saying you're buying voluntary credit insurance unless
you really want to buy it.
second thoughts about the loan? The Truth in
Lending Act gives most home equity borrowers at
least three business days after closing to cancel the
deal. This is known as your right of "rescission." In
some situations (ask your attorney), you may have up to
three years to cancel. To rescind, you must notify the
creditor in writing. Make sure you document your
rescission. Send your letter by certified mail, and
request a return receipt. That will allow you to
document what the creditor received and when. Keep
copies of your correspondence and any enclosures. After
you rescind, the lender has 20 days to return the money
or property you paid to anyone as part of the credit
transaction and release any security interest in your
home. Remember that you must then offer to return the
creditor's money or property, which may mean getting a
new loan from another lender.
The Home Ownership and Equity Protection Act (HOEPA)
may give you additional rights if your loan is a
home equity loan, second mortgage or refinance
secured by your principal residence and if:
- the loan's
APR exceeds by more than 8 percent the rate on a
Treasury note of comparable maturity on a first
mortgage, or the loan's APR exceeds by more than
10 percent the rate on a Treasury note of
comparable maturity on a second mortgage.
- the total fees
and points at or before closing exceed $499 or 8
percent of the total loan amount, whichever is
larger. (The $499 figure is for 2004 and is
adjusted annually.) Credit insurance premiums
written in connection with the loan count as
fees for this purpose.
If HOEPA applies:
- A lender may
not engage in a pattern or practice of lending
based on home equity without regard to the
borrower's ability to repay the loan.
- You must get
certain disclosures from the lender at least
three business days before closing.
- Your lender
cannot make a direct payment to a home
- Certain loan
terms are illegal — such as most prepayment
penalties and increased interest rates at
- In most
situations, your loan cannot have a balloon
payment due in less than five years.
clauses may not be used unless the consumer
- A lender that
has made a HOEPA loan to a borrower generally
may not refinance that loan into another HOEPA
loan within the first year.
- Your lender
may not call a one-time loan a line of credit.
A high-rate or high-fee loan might be right for
you, but be aware that it has risks. It is an
extremely expensive way to borrow money. You
could lose your home if you can't make the
Where to Complain
If you think your lender has violated the law, you may
wish to contact the lender or loan servicer to register
your concerns. At the same time, you may want to contact
an attorney, your state Attorney General's office or
banking regulatory agency, or the Federal Trade