Refinance and 1st Mortgage Loans

Top 10 Home Equity Mortgage Tips (part 2)

This is a continuation of Top 10 Home Equity Mortgage Tips (part 1)

6. What are the upfront
   closing costs of a home equity mortgage?

   When you take out a home equity mortgage
   line of credit, you pay for many of the same
   expenses as when you financed your original
   mortgage. These include items such as an
   application fee, title search, appraisal,
   attorneys’ fees, and points (a percentage of
   the amount you borrow). These expenses can add
   substantially to the cost of your loan,
   especially if you ultimately borrow little
   from your credit line. You may want to
   negotiate with lenders to see if they will pay
   for some of these expenses.

7. What are the continuing
   costs of home equity mortgages? 

   In addition to upfront closing costs, some
   lenders require you to pay continuing fees
   throughout the life of the loan. These may
   include an annual membership or participation
   fee, which is due whether or not you use the
   account, and/or a transaction fee, which is
   charged each time you borrow money. These fees
   add to the overall cost of the loan.

8. What are the repayment
   terms during a home equity mortgage loan?

   As you pay back the loan, your payments may
   change if your credit line has a variable
   interest rate, even if you do not borrow more
   money from your account. Find out how often
   and how much your payments can change. You
   also will want to know whether you are paying
   back both principal and interest, or interest
   only. Even if you are paying back some
   principal, ask whether your monthly payments
   will cover the full amount borrowed or whether
   you will owe an additional payment of
   principal at the end of the loan. In addition,
   you may want to ask about penalties for late
   payments and under what conditions the lender
   can consider you in default and demand
   immediate full payment.

9. What are the repayment
   terms at the end of a home equity mortgage
   loan?

   Ask whether you might owe a large payment
   at the end of your loan term. If so, and you
   are not sure you will be able to afford the
   balloon payment, you may want to renegotiate
   your repayment terms. When you take out the
   loan, ask about the conditions for renewal of
   the plan or for refinancing the unpaid
   balance. Consider asking the lender to agree
   ahead of time and in writing to refinance any
   end-of-loan balance or extend your repayment
   time, if necessary.

10. What safeguards are built
    into a home equity mortgage loan?

    One of the best protections you have is the
    Federal Truth in Lending Act, which 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
    mortgage 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 your home is at risk when you open
    a home equity mortgage 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 canceled and all fees you have
    paid must be returned.

    Once your home equity mortgage 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.

    For More Information The FTC works for the
    consumer to prevent fraudulent, deceptive and
    unfair business practices in the marketplace
    and to provide information to help consumers
    spot, stop and avoid them. To file a complaint
    or to get free information on consumer issues,
    visit www.ftc.gov
    or call toll-free, 1-877-FTC-HELP
    (1-877-382-4357); TTY: 1-866-653-4261. The FTC
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    available to hundreds of civil and criminal
    law enforcement agencies in the U.S. and
    abroad.