Can The Bank Change The Terms On Home Equity Loans?

Considering a home equity loan? Don’t be a victim! Be smart. Here is how to protect your most valuable asset when you take out your second mortgage.

Home equity loans, also known as “second mortgages,” are loans in which the borrower’s house is used as collateral. “Equity” refers to the house’s net worth after all debts are paid off. As with any loan, the borrower must pay interest; interest rates for home equity loans tend to be variable.

Variable Interest and APR



With a variable interest loan, the lender and borrower agree on an Annual Percentage Rate, or APR. This number consists of a interest rate– based on a public index– and an additional “margin” of a few percentage points. The APR will change from year to year as the index changes. To ensure that the lender is being honest, the borrower should find out how much of the rate is margin and which index is being used, and check the index periodically. The lender and borrower may agree to change the terms of the loan or switch to a fixed interest rate later on.

Frozen or Reduced Credit Lines

If the value of the borrower’s house declines significantly, or if the borrower’s house is located in a “high risk” area, the lender may freeze the borrower’s line of home equity credit. This is legal, and sometimes the borrower can negotiate with the lender to restore the credit line.

Read Everything Before You Sign Anything

To avoid nasty surprises on your first loan statement, read all of the paperwork very carefully before you sign anything. Some banks will quietly “package” unnecessary services with your loan, hoping that you won’t read the paperwork closely enough to notice, and then charge you for those services later on. Look for packaged services in the loan agreement and speak up about any concerns; you do not have to accept these services if you do not want them.

Related posts:

  1. Can A Lender Change My Mortgage Terms?
  2. Can A Bank Call In My Home Equity Loan?
  3. Should I Get A Equity Line Of Credit Or A Second Mortgage?
  4. Can Home Equity Loans Be Refinanced?
  5. How Long Does It Take To Get The Money For Home Equity Loans?



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