Legal Protections and Rights for HELOC
Written by Daphne Tai   

 
The home equity line of credit (HELOC) application process uses criteria similar to that of the mortgage loan process to evaluate your financial well-being. Generally, all that’s required to apply is an appraisal of your home and verification of your income.


Protections
Terms
The federal Truth-in-Lending Act requires lenders to disclose the important terms and costs of their home equity plans. This includes the APR, miscellaneous charges, the payment terms, and information about any variable-rate features. In general, neither the lender nor anyone else may charge a fee until after you have received this information.

You usually receive these disclosures along with the application form. Any additional disclosures will be reviewed before the plan is opened. If any term changes before the plan is opened, you have the right to refuse to enter into the plan, and to a refund of all fees you have already paid the lender.

Right to Cancel
When you open a HELOC, the transaction puts your home at risk. The Truth-in-Lending Act gives you 3 days from the day the account was opened to cancel the credit line for any reason. Simply by informing the lender in writing within 3-day period, the lender must cancel its security interest in your home and return all fees, including all the application and appraisal fees.


The Process

An appraisal and title search are ordered upon preliminary approval of your application before a final credit decision is rendered. You can get a home equity line of credit in a matter of weeks; it is much quicker than getting a mortgage loan. The entire process usually takes about seven to ten business days.


Credit Line Freeze

There are some circumstances when the lender freezes or reduces your line of credit. Sometimes when the lenders believe that you will be unable to make your payments due to a material change in your financial situation or the value of the home declines significantly, they might freeze or reduce your line of credit. Then you should talk to your lender and find out what caused the lender to make this change. You may be able to provide additional information to restore your line of credit, such as documentation showing that your house has retained its value or that there has not been a material change in your financial circumstances.



 
Last Updated on Wednesday, 22 December 2010 05:55