The Federal Truth and Lending Act requires lenders to disclose the important terms and costs of their home equity plans, including the APR, miscellaneous charges, the payment terms, variable rate information. You usually get these disclosures when you receive an application form. You will also receive additional disclosures before the plan is opened. If any of these terms change before the plan is opened, and you decide not to follow through, the lender must return all fees.
Borrowers need to pay close attention to fees. If you dont understand terms and conditions ask questions, knowing the monthly payment amount and interest rate is not enough. Remember, from a bankers point of view home equity lines are safe and highly profitable. It always pays to shop around before you sign on the dotted line. Fees and terms vary greatly. Some points to look for:
- Application or loan processing fee
- Origination or underwriting fee
- Lender or funding fee
- Appraisal fee
- Document preparation and recording fees
- Broker fees (which may be quoted as points)
- Interest Rate ad-ons.
- Rates on home equity lines can vary by as much as two percentage points.
- Some lenders offer an “initial rate”. Be sure to find out how long this rates lasts (usually six months) and what the final rate will be after the “initial rate” expires.
- Annual fee (to keep the line open)
- “Non-usage” fee for borrowers who do not draw down on their lines.
- For both home equity loans and home equity lines of credit you may be hit with a early-termination fee of a couple hundred dollars if you pay off the home equity loan /line and/or cancel it within 3 years.
