Under the federal Truth in Lending Act, the HELOC consumer is granted certain rights. Most importantly, you have the right to be given information about your HELOC before agreeing to the loan or paying any fees. You also have the right to cancel your home equity line of credit within a specified time frame.
Truth in Lending Disclosures
The Truth in Lending Act requires that lenders disclose loan information to the borrower before any paperwork is signed. Under the law, the disclosures must be clearly written and easy to find (not hidden among unrelated information):
The disclosures required by paragraph (d) of this section shall be made clearly and conspicuously and shall be grouped together and segregated from all unrelated information. The disclosures may be provided on the application form or on a separate form.
Pay careful attention to the Truth in Lending disclosures. By law, your lender must stick to the information they give you (assuming you submit an application within the specified time frame). If you choose not to open a HELOC because the lender changes the disclosed terms, you are entitled to receive a refund of all fees. For this reason, you should always make a copy of Truth in Lending disclosures as soon as you receive them.
Among the required disclosure information, your lender must provide you with paperwork that shows the following:
- the length of the draw period
- the length of the repayment period
- an explanation of how the minimum periodic payment will be determined, and the timing of such payments.
- fees imposed by the lender
- fees imposed by third parties
- information about negative amortization
- transaction requirements
- tax implications
- the index used in making rate adjustments
- the frequency of changes in the annual percentage rate
- additional information about adjustable rate loans
This information is extremely important when comparing loans and making sure you are getting a fair rate. Before agreeing to anything, you should read the home equity section of the Truth in Lending Act in its entirety.
Truth in Lending 3-Day Cancellation Period
If the property used to secure your HELOC is your principle dwelling, the Truth in Lending Act gives you 3 days from the day the account is opened (or from the day you receive all of the mandated disclosures, whichever is later) to cancel the line of credit. Perhaps the fees are too high, you didn’t understand the terms, or you’ve just changed your mind. You can cancel for any reason and receive a refund of all fees - including third party charges such as the appraisal.
To take advantage of the 3-day cancellation period, simply write to your lender within the first 3 days. It’s advisable to send the letter with delivery confirmation – you want to make sure it is received.
If you never receive the disclosures mandated by the Truth in Lending Act, you are given three years to return the money and cancel the loan. Technically, you may be able to void the HELOC lender’s lien on your home, turning the lender into an unsecured creditor. Although possible, this scenario is extremely unlikely.
See Also:
HELOC 3-Day Right of Rescission