When reviewing lenders for home equity borrowing, ask questions. Products vary greatly between financial institutions, and understanding the pros and cons of each will help you make the right choice. Ideally, you should interview several lenders to understand the variety of home equity products on the market and what is required of each.
“One of the best protections you have is the Federal Truth in Lending Act. Under the law, lenders must tell you about the terms and costs of the loan plan when you get an application,” reports the Federal Trade Commission.
Start with these seven questions:
- What is the interest rate? Clarify whether the rate is an introductory offer that will change in the future. Know whether you are borrowing with a fixed or adjustable rate. If it is adjustable, ask how that rate will be determined.
- If the rate is variable, can I switch to a fixed rate at any time during the loan?
- Will I be expected to pay any fees up front or during the life of the loan?
- Are there minimum withdrawal requirements?
- How will I access the money (i.e. checks, credit cards, online transfers)?
- What are the fees for late payments?
- Is there a pre-payment penalty?
For a thorough understanding of home equity borrowing, download Equity Edge: Answers to Commonly Asked Questions. This is a free publication from Hanscom Federal Credit Union that includes information about the three most common ways to tap into home equity, the top reasons homeowners borrow home equity, and how to qualify for a loan or line of credit.