More and more lenders are offering home equity lines of credit. By using the equity in your home, you may qualify for a sizable amount of credit, available for use when and how you please, at an interest that is relatively low. Furthermore, under the tax law--depending on your specific situation--you may be allowed to deduct the interest because the debt is secured by your home. If you are in the market for credit, a home equity plan may be right for you. Or perhaps another form of credit would be better. Before making a decision, you should weigh carefully the costs of a home equity line against the benefits. And remember, failure to repay the amounts you've borrowed, plus interest, could mean the loss of your home.
Interest Rate Charges And Related Plan Features
The variable rate must be based on a publicly available index (such as the prime rate published in some major daily newspapers or a U.S. Treasury bill rate); the interest rate for borrowing under the home equity line changes, mirroring fluctuations in the value of the index. Most lenders cite the interest rate you will pay as the value of the index at a particular time plus a "margin," such as 1 percentage points. Because the cost of borrowing is tied directly to the value of the index, it is important to find out which index is used, how often the value of the index changes, and how high it has risen in the past as well as the amount of the margin. Lenders sometimes offer a temporarily discounted interest rate for home equity lines--a rate that is unusually low and may last for only an introductory period, such as 6 months. Variable-rate plans secured by a dwelling must, by law, have a ceiling (or cap) on how much your interest rate may increase over the life of the plan. Some variable-rate plans limit how much your payment may increase and how low your interest rate may fall if interest rates drop. We will be happy to help you compare our Home Equity loan with another.
What Is Predatory Lending And How Can It Affect You?
When you hear “Bad credit? No credit? No problem!” followed by promises of easy money, watch out! A loan from such a source could end up being a costly mistake. If you agree to such a loan and then fall behind in your payments, you can ruin your credit. You can also lose your home’s equity and even your home!
Most lenders are trustworthy – but unfortunately, some lenders are not. They sometimes direct borrowers away from loans with more affordable interest rates. Instead, they offer loans that carry very high interest rates, questionable fees, and unnecessary charges. These practices are considered predatory lending.
A predatory lender may be a large company with a name you know. Or it may be a small company or a loan broker you’ve never heard of. But predatory lenders have many of the same traits. They:
With or without these extra charges, you may find it difficult or even impossible to repay the loan. If you fall behind in your payments, more charges may be added. Or the lender may suggest that you refinance the loan to lower your monthly payment. But the unpaid payments may be added to the new loan amount, costing you even more money over time. Then the loan becomes even more difficult to repay. If you can’t make the payments, you could lose your home! Click here for more information on predatory lending practices and victims’ stories.
- offer loans based solely on the equity in a home, not on the borrower’s ability to repay the loan;
- charge unusually high interest rates for loans;
- add excessive points to a loan without lowering the interest rate;
- include excessive fees; and
- tack on unnecessary costs, such as prepaid single-premium credit term insurance.
You can avoid predatory lending practices by applying for a Home Equity loan with your credit union.
Have questions? E-mail us! Ready to apply? Apply online!