Shopping for a Home Equity Loan
Closing the deal
Truth in Lending Act
When you apply for a home equity loan, certain information must
be provided to you. The federal Truth in Lending Act (TILA) requires
lenders to disclose the following: the terms and cost of the loan
including the annual percentage rate, points, fees and closing costs,
the amount being borrowed, the amount owed and interest paid, special
terms such as a variable interest rate, a balloon payment and a
pre-payment penalty.
You will receive initial TILA disclosures at the time of application
or shortly after you apply and you will receive additional TILA
disclosures before you close the loan. TILA also prevents changes
in the terms and conditions of the account other than the variable-rate
feature.
Signing Loan Documents
 Loan
information will help you compare the loan offers and decide which
loan is right for you. When you have decided on a loan, it is very
important that you read all documents you will be signing at closing.
Reading the documents just before you actually sign them is not
the best way to do this. You may feel rushed and the tendency is
to just glance over the paperwork. Your home is on the line and
you need to understand every part of the contract.
You should ask the lender to give you copies of the actual documents
you will be asked to sign. Review the documents at home with someone
you trust ahead of time. Understand and feel comfortable with everything
in the contract - if there is something you do not understand, ask
questions until you do understand. If there are terms you do not
want, don't sign the loan - negotiate or walk away.
The lender is not required to give you copies of the loan agreement
ahead of time but most lenders will. If your lender does not want
to give you filled in paperwork, ask for blank copies of the loan
papers. Once again, the lender is not required to do this but there
is no harm in asking. Even reading blank papers will let you know
what to expect at signing.
Three Day Cancellation
Under the TILA, you have three days to cancel a signed home equity
loan agreement for any reason. If you decide to cancel the agreement,
the contract you have signed with the creditor is void - you are
not liable for any amount, the hold on your home as security for
the loan is released and the lender must return any fees paid within
20 days.
For the three day cancellation rule to apply to home equity loans,
the loan must be taken out against your primary residence and not
a second home or a vacation home. The three day cancellation rule
does not apply when a state agency is the creditor for a loan.
The three day period for cancellation begins after all of the following
occur:
- you sign the credit contract;
- you receive a Truth in Lending disclosure form containing certain
key information about the credit contract, including the annual
percentage rate; finance charge; amount financed; and payment
schedule; and
- you receive two copies of a Truth in Lending notice explaining
your right to rescind
If you decide to cancel you must notify the creditor in writing
and the notification must be delivered before the third business
day. Business days include Saturdays but not Sundays or legal public
holidays.
The three day cancellation is a waiting period for the loan and
activity related to the contract cannot take place. The lender may
not deliver the money for the loan. If you're dealing with a home
improvement loan, the contractor may not deliver any materials or
start work.
Now that you have a home equity loan.
You need to maintain very accurate records of your home equity loan.
Keep a copy of any loan paperwork you signed at closing and records
of all payments you have made. Make repaying your home equity loan
a priority. Keep all lender billing information and dispute any
inaccurate charges. If for some reason, you are going to miss a
payment, don't just let it happen - contact your lender and let
them know ahead of time.
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