Using your home as collateral for a loan is a risky undertaking because if you become unable to make the loan payments for whatever reason, the lender can collect your home instead. This risk is one reason why the federal Home Ownership and Equity Protection Act (HOEPA) mandates certain protections for consumers who obtain a high-cost loan, as defined by law. These protections are as follows:


The lender must make certain required disclosures at least three business days before the loan transaction closes.


It is illegal for the lender to disperse loan proceeds directly to a home improvement contractor.


A high-cost loan cannot have a balloon payment or a big final payment that’s due sooner than five years.


Be sure to consult a trusted attorney, financial advisor or other qualified person before you obtain a loan secured by your home. If you ever have second thoughts about a loan transaction, contact an attorney immediately. Acting quickly may preserve a right to cancel the loan.


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