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Shopping for a Home Equity Loan?
If
you decide that the timing’s right for a home equity loan, ask your friends or family
for recommendations of lenders. Then, comparison shop. Comparing loan
plans will help you get a better deal.
Contact several lenders, not just the ones that send you mail, call you,
or knock on your door. Talk with banks, savings and loans, credit unions, mortgage
companies, and mortgage brokers. Remember, brokers don’t lend money: they help
arrange loans.
Ask all the lenders you interview to explain the loan plans they have for
you. If you don’t understand any loan terms and conditions, ask questions.
They could mean higher costs. Knowing just the amount of the monthly payment or the
interest rate is not enough. Pay close attention to fees,
including: the application or loan processing fee, origination or underwriting fee, lender
or funding fee, appraisal fee, document preparation and recording fees, and broker fees
which may be quoted as points, origination fees, or interest rate add-on. If points and
other fees are added to your loan amount, you’ll pay more to finance them.
Also ask for your credit score. Credit scoring is a
system creditors use to help determine whether to give you credit. Information about you
and your credit experiences – like your bill-paying history, the number and type of
accounts you have, late payments, collection actions, outstanding debt, and the age of
your accounts – is collected from your credit application and your credit
report. Creditors compare this information to the credit performance of consumers
with similar profiles. A credit scoring system awards points for each factor that helps
predict who is most likely to repay a debt. A total number of points – your credit
score – helps predict how creditworthy you are, that is, how likely it is that you
will repay a loan and make the payments when they’re due.
Negotiate with more than one lender. Don’t be afraid
to make lenders and brokers compete for your business by letting them know that
you’re shopping for the best deal. Ask each lender to lower the points, fees or the
interest rate. And ask each to meet – or beat – the terms of the other lenders.
Before you sign, read the loan closing papers carefully.
If the loan isn’t what you expected or wanted, don’t sign the loan. Either
negotiate changes or walk away. You also generally have the right to cancel the deal for
any reason – and without penalty – within three days after signing the loan
papers. The lender must return any money you’ve paid to date.
Your Credit Report
Because your credit report is an important part of many credit scoring
systems, it’s very important to make sure it’s accurate before
you submit a credit application. To get copies of your report, contact the three major
credit reporting agencies:
Equifax: (800) 685-1111
Experian (formerly TRW): (888) EXPERIAN (397-3742)
Trans Union: (800) 916-8800
These agencies may charge you up to $9.00 for your credit report. |
To Learn More
For more information about shopping for a home equity loan and a glossary of home loan
terms, call the FTC’s Consumer Response Center toll-free at 1-877-FTC-HELP
(382-4357). Ask for a free copy of Looking for the
Best Mortgage: Shop, Compare, Negotiate; and Home Equity
Loans: The Three-Day Cancellation Rule. Or visit us online at www.ftc.gov.
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Lender A |
Lender B |
Lender C |
| What are the monthly
payments? |
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What is the Annual
Percentage Rate (APR)?
(the cost of credit expressed as a yearly rate; includes the interest rate, points,
broker fees, and other credit charges) |
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What is the interest rate?
(the cost of borrowing money expressed as a percentage rate) |
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| Will the interest rate
change? |
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When?
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How often?
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By how much?
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| What will you have to pay in
points? |
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| What will you have to pay in
fees? |
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Application or loan processing fee
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Origination or underwriting fee
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Lender or funding fee
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Appraisal fee
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Document preparation and recording fees
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Broker fees
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Other fees
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| Are any of the application
fees refundable if you don't get the loan? |
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| How many years will you have
to repay the loan? |
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| Is this an installment loan
or a line of credit? |
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| Is there a balloon payment? |
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| What are the total closing
costs? |
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| If you use a broker, how
will he or she be paid? |
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| What is the penalty for late
or missed payments? |
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Does the loan include
optional credit insurance?
(You don't have to accept optional credit insurance to get your loan.) |
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| If you want optional credit
insurance, can you pay for it monthly instead of financing the premiums as part of your
loan? |
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| Did you get a copy of your
credit score? |
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| Can you afford this loan? |
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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 enters Internet, telemarketing, identity theft and other fraud-related
complaints into
Consumer Sentinel, a
secure, online database available to hundreds of civil and criminal law
enforcement agencies in the U.S. and abroad.
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FEDERAL TRADE COMMISSION |
FOR THE CONSUMER |
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1-877-FTC-HELP |
www.ftc.gov |
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January
2001 |
