| Thinking about borrowing money?
Because of the risks involved, think twice before using the equity in your
home to secure the loan. Sometimes there are financial advantages to using
your home's equity when you borrow, but most advantages disappear if you
have to pay high interest rates and fees on the loan. Home equity loans
with high rates, points, or fees are especially risky because you could
lose your home if you can't make the monthly payments!
What You Should Know
You do have some legal protections
when you take a loan secured by your home if the loan has a high interest
rate or high fees. That's true whether you have a home equity loan, refinancing
loan, or second mortgage. AARP has a special interest in this issue. Many
of these loans are aimed at older or lower-income homeowners who may have
a lot of equity in their homes and may need money to pay for medical expenses
or home repairs.
The bottom line:
Before getting a loan secured
by your home, talk to your attorney, financial advisor, or someone else
you trust about the risks involved.
To control the practices used
by lenders that charge very high fees and interest rates on home loans,
Congress passed the Home Ownership and Equity Protection Act (HOEPA). Under
this law, you have a high interest rate loan if the loan's annual percentage
rate (APR) is 8 points higher than the rate on a Treasury bill for the
same length of time. At today's rates, a 10-year loan would be considered
"high rate" if the rate is above about 13 percent. Fees are defined as
total fees and points you have to pay up front. They are considered "high"
if they equal more than $480 (2002 figure) or 8% of the total loan amount,
whichever is higher.
Your legal rights if you have
a HOEPA loan:
The lender must give you certain
disclosures at least three business days before closing on the loan;
The lender cannot make a direct
payment to a home improvement contractor; and
Your loan cannot have a balloon
payment (large final) due in less than five years.
Talk to your attorney, financial
advisor, or someone else you trust before making a home equity loan decision.
If you have second thoughts after taking out a loan, contact an attorney
immediately. If the lender violates HOEPA or any Truth in Lending laws,
you have a right to cancel the loan. But you must act quickly.
For More Information
Federal Trade Commission
The Federal Trade Commission
(FTC) has additional information about HOEPA loans and how to spot unscrupulous
lenders.
URL: http://www.ftc.gov/bcp/conline/pubs/homes/32mortgs.pdf
To file a complaint about a lender,
contact the FTC Consumer Response Center Web site, or call 1-877-FTC-HELP
(382-4357), TDD 202-326-2502.
URL: http://www.ftc.gov/ftc/complaint.htm
Federal Reserve Board
The Federal Reserve Board has
useful information on selecting a mortgage and the importance of comparison
shopping for the best mortgage terms.
URL: http://www.federalreserve.gov/pubs/mortgage/mortb_1.htm
To file a complaint about a bank,
you can also contact the Federal Reserve Board.
URL: http://www.federalreserve.gov/pubs/complaints/default.htm |
