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Comparing a line of credit and a traditional second mortgage loan
If you are thinking about a home equity line of credit you also might want to consider a more traditional second mortgage loan. This type of loan provides you with a fixed amount of money repayable over a fixed period. Usually the payment schedule calls for equal payments that will pay off the entire loan within that time. You might consider a traditional second mortgage loan instead of a home equity line if, for example, you need a set amount for a specific purpose, such as an addition to your home.
In deciding which type of loan best suits your needs, consider the costs under the two alternatives. Look at the APR and other charges. You cannot, however, simply compare the APR for a traditional mortgage loan with the APR for a home equity line because the APR’s are figured differently.
• The APR for a traditional mortgage takes into account the interest rate charged plus points and other finance charges.
• The APR for a home equity line is based on the periodic interest rate alone. It does not include points or other charges.
Disclosures from Lenders
The Truth in Lending Act requires lenders to disclose the important terms and costs of their home equity plans, including APR, miscellaneous charges, the payment terms, and information about any variable-rate feature. And in general, neither the lender nor anyone else may charge a fee until after you have received this information. You usually get these disclosures when you receive an application form, and you will get additional disclosures before the plan is opened. If any term has changed before the plan is opened (other than a variable-rate feature), the lender must return all fees if you decide not to enter into the plan because of the changed term.
When you open a home equity line, the transaction puts your home at risk. The Truth in Lending Act gives you three days from the day the account was opened to cancel the credit line. This right allows you to change your mind for any reason. You simply inform the creditor in writing within the three-day period. The creditor must cancel the security interest in your home and return all fees – including any application and appraisal fees – paid in opening the account.
For more information please contact Prime Lend America Mortgage Corporation - Call Toll-Free: 1-877-US-PRIME
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