Consumer Protection

Home Equity Loans


If you have owned your home for a few years, the equity in your home may be your largest asset. Educate yourself before you pledge your equity for a loan or borrow against your equity by refinancing your home. You could actually lose your home if you fail to make good decisions. Here is how to protect yourself:

Do not:

  • Do not agree to a home equity loan if you do not have enough income to make the monthly payments. Watch out for loans with “balloon payments.” A balloon payment is a large sum representing the remaining principal balance due on a loan that must be made on a set date.
  • Do not sign any document you have not read or that has blank spaces to be filled in after you sign.
  • Do not let anyone pressure you into signing any document. Read and understand every document you are asked to sign. These documents sometimes disclose special rights provided to you by law. For example, if you use your home equity to finance home improvements, you have three days to cancel the contract and financing agreement without penalty.
  • Do not agree to a loan that includes expensive credit insurance or extra products you do not want or need.
  • Do not let the promise of extra cash or lower monthly payments get in the way of your good judgment about whether the total price paid for the loan is really worth it.
  • Do not deed your property to anyone as part of obtaining a loan.

Do:

  • Ask specifically if credit insurance is required as a condition of the loan. If it is not, and a charge is included in your loan and you do not want the insurance, ask that the charge be removed from the loan documents. If credit insurance is required as a condition of the loan, shop for another lender. If you want the added security of credit insurance, shop around for the best rates.
  • Keep careful records of what you have paid, including billing statements and cancelled checks. Challenge any charge you think is inaccurate.
  • If your home equity loan is in connection with a home improvement project, shop around for the best financing available. Do not merely accept financing offered by the contractor.
  • Consider loan counseling. Home equity loans are complex legal transactions. Expert home equity loan counseling is available for free or at a low cost in your community.
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