When getting ready to obtain a home equity loan, there is a level of confidence in knowing that you have government backing known as the Truth in Lending Act. This federally mandated law was established to ensure consumers have the opportunity to make legitimate comparisons regarding costs and terms from different lending institutions. The mandate states that lenders are required to disclose these costs and terms, thus providing you with all the information needed to make an honest and educated decision.
The Truth in Lending Act offers great protection to the consumer for first mortgage and second mortgages (home equity loans). Being armed with this information puts you in more control of the lending process. Specific information that the lender must disclose is terms and costs of all loan plans to include:
Annual percentage fee
Total principal amount being financed
Points and fees such as closing costs
Payment due date
Payment terms such as balloon payment, late fees, different options of variable-rate loans (highest rate chargeable, calculation strategies, monthly payment)
Total finance charges
Application fees
Service fees
Pre-payment penalties, if applicable
Confirmation of address that property loan is being financed for
Until you are provided with this specific information, no fees can be charged to you, according to this law. In addition, advertising lenders, by any form of media, such as newspaper, Chamber of Commerce, Internet, etc. by law, must meet Truth in Lending Act disclosure requirements. These include:
Credit terms that are advertised must be available to applicants
If applicable, advertisement must state that the annual percentage may be increased after the loan closes
If any advertisement provides a rate, that rate must be stated as an Annual Percentage Rate (APR) using that term. This rate would include other costs such as fees and points falling within the loan’s first year.
The only other rate acceptable in the advertisement is a simple annual rate, or periodic rate, which is applied to the unpaid balance. This rate may be stated in conjunction with the APR, but cannot be more conspicuous.
The Truth in Lending Act applies to any individual or business that offers/extends credit to consumers; where the credit is subject to finance charges or payable in more than four installments; the credit is for personal, household, or family purposes; the loan balance is at least or more than $25,000 or secured by interest in real property or dwelling. You have significant rights with certain types of credit transactions.
One of these rights when borrowing money for a real estate transaction, you are allowed three days in which to change your mind and cancel the loan process. This is called the Right of Rescission. Keep this reference handy as you start your research for a home equity loan to know, and sometimes remind others, what your legal rights are.