Navigating Around Tricky HELOC Waters

Many people have concluded that the HELOC is the best choice for financing home improvements, putting a child through college, debt consolidation or any of the other occasional heavy demands on funds beyond the regular household budget.

The HELOC offers important advantages in terms of lower interest rates, the ability to take out a loan in installments, and the opportunity to set off payments against income tax.

While it is still possible to find a fair HELOC offer, the economic downturn has made it harder to find HELOCs since banks are naturally concerned over the falling value of the property equity that secures these loans.

Given the decline in the easy availability of HELOCs over the last two or three years, you can expect to have to spend more time to find a bank that offers the HELOC arrangement you desire. Should someone offer you a HELOC deal on unbelievably good terms, it is likely to be very tempting.

Before rushing ahead to sign along the dotted line it pays to carefully investigate this amazing deal. In the world of finance, the too good to be true offer should instinctively cause you to stop in your tracks and look carefully in every direction; more likely than not accepting this deal will cost you dearly.

Typical Tactics of HELOC Tricksters

Fraudulent HELOC schemes encourage their victims to take out loans with repayments arranged to fall short of the amount needed to cover the principal and interest owed, and consequently the debt and payment installments are going to rapidly increase.

Another tactic used is to persuade the borrower to take a loan with repayments beyond their ability to pay and so there is a real danger that the borrower’s home might be forfeited.  Some of these dishonest financiers also deliberately fail to provide borrowers with accurate information on the status of their HELOC.

Looking for the Warning Signs

  • Before responding to a HELOC offer you should make inquires into the legitimacy and honesty of the lender. Make sure that all estimates are put in writing and take the time to discuss these conditions with trusted legal and financial advisors.
  • Suppose you went ahead and responded to a HELOC offer. Before committing yourself, look out for the following warning signs and back off if any of them occur:
  • The lender is trying hard to persuade you to take out a larger loan than you originally asked to take, or encourages you to refinance the loan many times and thereby burden you with additional charges and interest payments.
  • When the time arrives to sign on the loan, the lender pushes you to agree to pay higher fees than those discussed in your original meeting.
  • You are asked to pay a sizable sum of money in advance of completing the HELOC application. While HELOCs often require paying application, appraisal, legal and some other fees, these charges are only levied after your application is accepted.
  • Pressure is applied for you to agree to buy an insurance policy along with the loan.
  • Remember, the Truth in Lending Act allows you to cancel a HELOC within a certain time frame.

Know your Rights

If you have become involved in a HELOC scheme that gives you cause for concern, you can contact the Federal Trade Commission (FTC).  Failure to provide a borrower with accurate or sufficient details about a HELOC agreement is an offence under Federal law, and there are other financial practices associated with predatory HELOC lenders that can also open them to prosecution.

[ad#Horizontal banner]

The safest approach to getting a HELOC is invariably going to be approaching well-established banks and credit unions and comparing their offers. Your financial security and peace of mind are at stake when you take a HELOC from a shady source.