Roughly speaking, your home equity is the amount your home is worth minus the amount you still owe on your mortgage. Because equity in your home belongs to you, and not the bank that holds the mortgage on your home, you can use it as security to borrow additional money. Home equity loans are often used to pay for major expenses like home repairs, medical bills and college education.
You Can't Use All of Your Home Equity
You may be able to borrow up to 85 percent of the equity in your home. The exact amount you can borrow depends on several factors, such as your credit rating, how much you owe on current mortgages, and how long you will need to pay the money back. The longer you take to repay the loan, however, the higher your total interest payments are likely to be. The policies of each lender are different.
Two Types of Loan Structures are Common
One common type of loan structure is the lump sum payment, where the lender simply hands over the entire amount of your loan immediately. You repay it over time. Another type is the home equity line of credit, where the lender sets a maximum amount you may owe.
You can borrow and repay within this maximum as many times as you like during the loan period. Other types of arrangements are possible as well. For example, the lender may loan you money in a lump sum, and require you to repay it all at once on a particular date.
Beware of Home Equity Loan Scams
Some unscrupulous lenders offer loan terms, like interest rates, so unreasonable that you won't be able to repay the money. Alternatively, lenders may encourage you to exaggerate your income.
This allows you to qualify for a loan with monthly payments so high that you can't pay them. If you fail to repay the home equity loan, the lender can foreclose, seize your house, and sell it. If you suspect that you've been victimized, contact your state attorney general's office.
Three Days to Cancel a Home Equity Loan
The three-day cancellation rule for home equity loans is federal law, meaning that it applies in every state and the District of Columbia. You don't have to give a reason. Simply changing your mind is good enough. You must notify the lender in writing.
The lender must return any money you have already paid, such as loan origination fees. The three-day period refers to business days. It begins as soon as you have signed the contract and received the required "Truth in Lending" documentation from the lender. Sundays and legal public holidays are not considered business days, but Saturdays are.
A Real Estate Lawyer Can Help
The law surrounding home equity loans can be complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a real estate lawyer.