When homeowners need extra money, they may turn to their investment in their home for help. Banks make home equity loans to their customers, using the home as collateral. The Home Equity Loan Consumer Protection Act (HELCPA), passed in 1988, regulates bank-lending practices to protect the customer who applies for this type of loan. Before taking out a loan that will use your house as collateral, find out what the bank can and cannot do.
Loan Types
The HELPCA requires that banks fully disclose the types of home equity loans available to the consumer. Loan options include conventional loans with a predetermined repayment schedule and home equity lines of credit (HELOCs) that offer a fund withdrawal period before converting the line of credit into a conventional loan or requesting full payment.
Risk Notification
All home equity loans put the home at risk because they use it as security to ensure that the customer repays the loan. If the customer defaults on the loan, the bank may foreclose on her home. The HELPCA requires lenders to make their customers fully aware of this risk before making the loan.
Rates
Banks may not change a customer's credit plan once the loan application process is underway. As a subsection of the Truth in Lending Law, the HELPCA requires banks to use the same interest rate they originally quoted their customer. This prevents a situation where a customer applies for a home equity loan at 6.5 percent, only to discover at signing that the bank used 8 percent to figure their loan.
Walking Away
Because sitting across the table from a loan officer who's using financial terms you've never heard can be confusing, you may misunderstand some of the terms of the loan. That's okay. You have three days to change your mind, and the banks have to make you aware of that right. You can let a trusted family member or an attorney look over the contract and if you change your mind, you can walk away within three days by returning to the bank and telling the loan officer that you want out of the loan.
Fees
Some banks charge additional fees when making a home equity loan. These fees may include an appraisal fee for determining the value of your home, closing costs if the bank is refinancing your home equity loan as part of your mortgage or credit check fees. The HELPCA requires the bank to list all additional fees in detail when you apply for the loan.
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