Why Home Equity Loans Can Be Risky

Increasingly, homeowners who need money for home repairs or to pay bills are turning to home equity loans as a way to solve their problems.

Unfortunately, not all loans and lenders are the same. It's wise to shop around. In fact, the cost of doing business with high-cost lenders can be excessive and sometimes abusive-even dangerous.

Borrowing from an unscrupulous lender who offers you a high-cost loan using your home as security is risky business. You could lose your home and your money.

Before you sign on the line:

• Think about your options-If you're having money problems, consider other options before you put your home on the loan line.

Talk with your creditors or budget counseling organizations to work out a plan that reduces your bill payments to a more manageable level.

Remember, if you decide to get a home equity loan and can't make the payments, the lender could foreclose and you would lose your home.

• Do your homework-Contact several lenders. Ask friends and family for recommendations of lenders. Talk with banks, savings and loans, credit unions, and other lenders before you proceed.

• Think twice before you sign-Have a knowledgeable friend, relative, attorney, or housing counselor review the Good Faith Estimate and other loan papers before you sign the loan contract.

Make sure all promises are put in writing. It's only what's in writing that counts.

• Know that you have rights under the law-If you're using your home as security for a home equity loan-or for a second mortgage loan or a line of credit-federal law gives you three business days after signing the loan papers to cancel the deal, for any reason, without penalty.

You must cancel in writing. The lender must then return any money you have paid to date.

More information about credit and home equity loans is available from the Federal Reserve Board. Visit www.federalreserve.gov/ pubs/riskyhomeloans.

If you're using your home as security for a home equity loan, federal law gives you three business days to cancel the deal.

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