Home Equity Line of Credit Terms & Disclosures

Home Equity Line Eligibility Criteria
Electronic Document Notice
Consumer Handbook

Please read, print, and retain the following documents for your records. If for any reason you cannot print the documents, please e-mail us to request that a paper copy be sent to you by postal mail.
Home Equity Line Eligibility Criteria
Following are the minimum criteria that the borrower and/or property must meet for one to become eligible to receive a home equity line of credit through us:
  1. There cannot be more than two (2) owners of record of the property that will be used to secure the line of credit.
  2. The borrower must be an individual. We cannot lend to trusts, partnerships, or corporations. For Trust ownership, please contact us for instructions.
  3. The property being used to secure the line of credit must be a primary residence or true vacation/second home. We cannot lend on investment or income-producing properties.
  4. The property used to secure the line must be a one- to two-unit property.
  5. The property used to secure the line must be permanently attached to real property. Mobile homes are not eligible for this program.
  6. The borrower must be a US citizen or permanent resident alien.
  7. The home equity line must be in second lien position at closing. Any existing liens on the property used to secure the home equity line, other than the first mortgage, must be paid prior to or with the proceeds from the home equity line of credit.
Electronic Document Notice
In choosing to conduct business with us via the Internet, we believe that you value the convenience of obtaining information quickly and efficiently.
In providing our products via the Internet, we deliver our contract terms and disclosures in an electronic format during our application processes. Please read the information carefully. This transaction is not available unless you agree to receive these documents electronically. Some information may be supplemented with paper documents where required by law or regulation.
Periodic statements of your home equity line of credit account activity also will be provided via electronic means. To receive your contract, disclosure and account information electronically, please confirm that you have the following:
  • An internet browser (such as Netscape Navigator or Microsoft Internet Explorer 4.0x or higher) that supports 128-bit encryption (also called domestic- U.S. grade-, or strong encryption); and
  • The ability to print or download information from our website so that you can keep copies for your records.
Because we will primarily communicate with you via electronic means, it is important that we have your current e-mail address. To update your e-mail address, please e-mail us.
Home Equity Line of Credit Program Disclosure
This disclosure contains important information about our Home Equity Line of Credit. You should read it carefully and print a copy for your records. Availability of Terms: All of the terms described below are subject to change. Security Interest: We will take a mortgage on your home. You could lose your home if you do not meet the obligations in your agreement. Possible Actions: Under certain circumstances, we can (1) terminate your line and require you to pay the entire outstanding balance in one payment; (2) refuse to make additional extensions of credit; and (3) reduce your credit limit. We can terminate your account and require you to pay the entire outstanding balance in one payment if:
  1. you engage in fraud or material misrepresentation in connection with the plan;
  2. you do not meet the repayment terms; or
  3. your action or inaction adversely affects the collateral rights in the property.
We can refuse to make additional extensions of credit or reduce your credit limit if:
  1. you engage in fraud or material misrepresentation in connection with the line;
  2. you do not meet the repayment terms;
  3. your action or inaction adversely affects the collateral or our rights in the collateral;
  4. the value of the dwelling securing the line declines significantly below its appraised value for purposes of the line;
  5. we reasonably believe you will not be able to meet the repayment requirements due to a material change in your financial circumstances;
  6. you are in default of a material obligation of the agreement;
  7. government action prevents us from imposing the annual percentage rate provided for or impairs our security interest such that the value of the interest is less than 120 percent of the credit line; or
  8. a regulatory agency has notified us that continued advances would constitute an unsafe and unsound business practice.
Requesting An Advance: You may request an advance of your Line of Credit by
  1. writing Home Equity Line of Credit checks that were given to you for this purpose; or
  2. authorizing, in writing, us to wire funds into your transaction account.
Minimum Payment Requirements: You can obtain credit advances for 5 year(s) (the "draw period"). At the end of five years, you may have the option to renew the "draw period," subject to our consent as to the renewal. During the draw period, payments will be due monthly. Your minimum monthly payment will equal the amount of accrued interest only. The minimum monthly payments during the draw period will not reduce the principal that is outstanding on your line. After the draw period ends, you will no longer be able to obtain credit advances and must pay the outstanding balance on your account (the "repayment period"). The length of the repayment period is 20 year(s). During the repayment period, payments will be due monthly. Your minimum monthly payment will equal the amount of accrued interest plus 0.4167% of the principal loan account balance at the end of the draw period.
The minimum monthly payments may not be sufficient to fully repay the principal on your line by the end of the draw and repayment periods. If they are not, you will then be required to pay the entire balance in a single payment. Minimum Payment Example: If you made only the minimum monthly payment and took no other credit advances, it would take 25 year(s) to pay off a credit advance of $10,000 at an ANNUAL PERCENTAGE RATE of 8.5%. During that period, you would make 60 payment(s) of $70.83 followed by 239 payment(s) varying between $112.50 and $41.64, with a final payment of $3,712.28.
The annual percentage rate is based on the value of an index. The index is The Wall Street Journal Prime Rate as published in The Wall Street Journal. To determine the annual percentage rate that will apply to your loan, we take the margin we approved for your loan and either add it to or subtract it from the index.
Ask us for the current index value, margin, and annual percentage rate. After you open a credit line, rate information will be provided on periodic statements that are provided to you electronically.
Rate Changes: The annual percentage rate can change monthly after remaining fixed for thirty days. There is no limit on the amount by which the rate can change in any one-year period. The maximum ANNUAL PERCENTAGE RATE that can apply during the plan is 18%.
Maximum Rate and Payment Examples: If you had an outstanding balance of $10,000 at the beginning of the draw period, the minimum monthly payment at the maximum ANNUAL PERCENTAGE RATE of 18% would be $150. The maximum annual percentage rate during the draw period could be reached in the first month following an initial hold of thirty days.
If you had an outstanding balance of $10,000 at the beginning of the repayment period, the minimum monthly payment at the maximum ANNUAL PERCENTAGE RATE of 18% would be $191.67. The maximum annual percentage rate during the repayment period could be reached in the first month following an initial hold of thirty days.
Home Equity Line of Credit Consumer Handbook
The following handbook contains some general information about Home Equity Lines of Credit.
About Home Equity Lines of Credit When Your Home is on the Line
More and more lenders are offering home equity lines of credit. By using the equity in your home, you may qualify for a sizable amount of credit, available for use when and how you please, at an interest rate that is relatively low. Furthermore, under the tax law -- depending on your specific situation -- you may be allowed to deduct the interest because the debt is secured by your home.
If you are in the market for credit, a home equity plan may be right for you, or perhaps another form of credit would be better. Before making this decision, you should weigh carefully the costs of a home equity line against the benefits. Shop for the credit terms that best meet your borrowing needs without posing undue financial risk. And, remember, failure to repay the line could mean the loss of your home.
What Is A Home Equity Line of Credit?
A home equity line is a form of revolving credit in which your home serves as collateral. Because the home is likely to be a consumer's largest asset, many homeowners use their credit lines only for major items such as education, home improvements, or medical bills and not for day-to-day expenses.
With a home equity line, you will be approved for a specific amount of credit -- your credit limit -- meaning the maximum amount you can borrow at any one time while you have the plan.
Many lenders set the credit limit on a home equity line by taking a percentage (say, 75%) of the appraised value of the home and subtracting the balance owed on the existing mortgage. For example:
Appraisal of home $100,000
Percentage x 75%
Percentage of appraised value $75,000
Less mortgage debt - $40,000
Potential credit line = $35,000
In determining your actual credit line, the lender also will consider your ability to repay, by looking at your income, debts, and other financial obligations, as well as your credit history.
Home equity plans often set a fixed time during which you can borrow money, such as 10 years. When this period is up, the plan may allow you to renew the credit line. But in a plan that does not allow renewals, you will not be able to borrow additional money once the time has expired. Some plans may call for payment in full of any outstanding balance. Others may permit you to repay over a fixed time, for example 10 years.
Once approved for the home equity plan, usually you will be able to borrow up to your credit limit whenever you want. Typically, you will be able to draw on your line by using special checks. Under some plans, borrowers can use a credit card or other means to borrow money and make purchases using the line. However, there may be limitations on how you use the line. Some plans may require you to borrow a minimum amount each time you draw on the line (for example, $300) and to keep a minimum amount outstanding. Some lenders also may require that you take an initial advance when you first set up the line.
What Should You Look for When Shopping for a Plan?
If you decide to apply for a home equity line, look for the plan that best meets your particular needs. Look carefully at the credit agreement and examine the terms and conditions of various plans, including the annual percentage rate (APR) and the costs you'll pay to establish the plan. The disclosed APR will not reflect the closing costs and other fees and charges, so you'll need to compare these costs, as well as the APRs, among lenders.
Interest Rate Charges and Plan Features.
Home equity plans typically involve variable interest rates rather than fixed rates. A variable rate must be based on a publicly available index (such as the prime rate published in some major daily newspaper or a U.S. Treasury bill rate); the interest rate will change, mirroring fluctuations in the index. To figure the interest rate that you will pay, most lenders add a margin, such as 2 percentage points, to the index value. Because the cost of borrowing is tied directly to the index rate, it is important to find out what index and margin each lender uses, how often the index changes, and how high it has risen in the past.
Sometimes lenders advertise a temporarily discounted rate for home equity lines -- a rate that is unusually low and often lasts only for an introductory period, such as six months.
Variable rate plans secured by a dwelling must have a ceiling (or cap) on how high your interest rate can climb over the life of the plan. Some variable rate plans limit how much your payment may increase and also how low your interest rate may fall if interest rates drop. Some lenders may permit you to convert a variable rate to a fixed interest rate during the life of the plan, or to convert all or a portion of your line to a fixed-term installment loan.
Agreements generally will permit the lender to freeze or reduce your credit line under certain circumstances. For example, some variable rate plans may not allow you to get additional funds during any period the interest rate reaches the cap.
Costs to Obtain a Home Equity Line.
Many of the costs in setting up a home equity line of credit are similar to those you pay when you buy a home. For example:
  • A fee for a property appraisal, which estimates the value of your home.
  • An application fee, which may not be refundable if you are turned down for credit.
  • Up-front charges, such as one or more points (one point equals one percent of the credit limit).
  • Other closing costs, which include fees for attorneys, title search, mortgage preparation and filing, property and title insurance, as well as taxes.
  • Certain fees during the plan. For example, some plans impose yearly membership or maintenance fees.
  • You also may be charged a transaction fee every time you draw on the credit line.
You could find yourself paying hundreds of dollars to establish the Plan. If you were to draw only a small amount against your credit line, those charges and closing costs would substantially increase the cost of the funds borrowed.
On the other hand, the lender's risk is lower than for other forms of credit because your home serves as collateral. Thus, annual percentage rates for home equity lines are generally lower than rates for other types of credit. The interest you save could offset the initial costs of obtaining the line. In addition, some lenders may waive a portion or all of the closing costs.
How Will You Repay Your Home Equity Plan?
Before entering into a plan, consider how you will pay back any money you might borrow. Some plans set minimum payments that cover a portion of the principal (the amount you borrow) plus accrued interest. But, unlike the typical installment loan, the portion that goes toward principal may not be enough to repay the debt by the end of the term. Other plans may allow payments of interest alone during the life of the plan, which means that you pay nothing toward the principal. If you borrow $10,000, you will owe that entire sum when the plan ends.
Regardless of the minimum payment required, you can pay more than the minimum, and many lenders may give you a choice of payment options. Consumers often will choose to pay down the principal regularly as they do with other loans. For example, if you use your line to buy a boat, you may want to pay it off as you would a typical boat loan.
Whatever your payment arrangements during the life of the plan -- whether you pay some, a little, or none of the principal amount of the loan -- when the plan ends you may have to pay the entire balance owed, all at once. You must be prepared to make this balloon payment by refinancing it with the lender, by obtaining a loan from another lender, or by some other means. If you are unable to make the balloon payment, you could lose your home.
With a variable rate, your monthly payments may change. Assume, for example, that you borrow $10,000 under a plan that calls for interest-only payments. At a 10 percent interest rate, your initial payments would be $83 monthly. If the rate should rise over time to 15 percent, your payments will increase to $125 per month. Even with payments that cover interest plus some portion of the principal, there could be a similar increase in your monthly payment, unless the agreement calls for keeping payments level throughout the plan.
When you sell your home, you probably will be required to pay off your home equity line in full. If you are likely to sell your house in the near future, consider whether it makes sense to pay the up-front costs of setting up an equity credit line. Also keep in mind that leasing your home may be prohibited under the terms of your home equity agreement.
Comparing a Line of Credit and a Traditional Second Mortgage Loan.
If you are thinking about a home equity line of credit, you also might want to consider a more traditional second mortgage loan. This type of loan provides you with a fixed amount of money repayable over a fixed period. Usually the payment schedule calls for equal payments that will pay off the entire loan within that time. You might consider a traditional second mortgage loan instead of a home equity line if, for example, you need a set amount for a specific purpose, such as an addition to your home.
In deciding which type of loan best suits your needs, consider the costs under the two alternatives. Look at the APR and other charges. You cannot, however, simply compare the APR for a traditional mortgage loan with the APR for a home equity line because the APRs are figured differently.
  • The APR for a traditional mortgage takes into account the interest rate charged plus points and other finance charges.
  • The APR for a home equity line is based on the periodic interest rate alone. It does not include points or other charges.
Disclosures from Lenders.
The Truth in Lending Act requires lenders to disclose the important terms and costs of their home equity plans, including the APR, miscellaneous charges, the payment terms, and information about any variable-rate feature. And in general, neither the lender nor anyone else may charge a fee until after you have received this information. You usually get these disclosures when you receive an application form, and you will get additional disclosures before the plan is opened. If any term has changed before the plan is opened (other than a variable-rate feature), the lender must return all fees if you decide not to enter into the plan because of the changed term.
When you open a home equity line, the transaction puts your home at risk. For your principal dwelling, the Truth in Lending Act gives you three days from the day the account was opened to cancel the credit line. This right allows you to change your mind for any reason. You simply inform the creditor in writing within the three-day period. The creditor must then cancel the security interest in your home and return all fees -- including any application and appraisal fees -- paid in opening the account.
  • Annual Membership or Participation Fee. An amount that is charged annually for having the line of credit available. It is charged regardless of whether or not you use the line.
  • Annual Percentage Rate (APR). The cost of credit on a yearly basis expressed as a percentage.
  • Application Fee. Fees that are paid upon application. An application fee may include charges for property appraisal and a credit report.
  • Balloon Payment. A lump-sum payment that you may be required to make under a plan when the plan ends.
  • Cap. A limit on how much the variable interest rate can increase during the life of the plan.
  • Closing Costs. Fees paid at closing, including attorneys' fees, fees for preparing and filing a mortgage, for taxes, title search, and insurance.
  • Credit Limit. The maximum amount that you can borrow under the home equity plan.
  • Equity. The difference between the fair market value (appraised value) of your home and your outstanding mortgage balance.
  • Index. The base for rate changes that the lender uses to decide how much the annual percentage rate will change over time.
  • Interest Rate. The periodic charge, expressed as a percentage, for use of credit.
  • Margin. The number of percentage points the lender adds to the index rate to determine the annual percentage rate to be charged.
  • Minimum Payment. The minimum amount that you must pay (usually monthly) on your account. In some plans, the minimum payment may be "interest only." In other plans, the minimum payment may include principal and interest.
  • Points. A point is equal to 1 percent of the amount of your credit line. Points usually are collected at closing and are in addition to monthly interest.
  • Security Interest. An interest that a lender takes in the borrower's property to assure repayment of a debt.
  • Transaction Fee. A fee charged each time you draw on your credit line.
  • Variable Rate. An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.
Where to Go for Help
The following federal agencies are responsible for enforcing the federal Truth in Lending Act, the law that governs credit term disclosures for home equity lines. Any questions concerning compliance with the act by a particular financial institution should be directed to its enforcement agency.
State Member Banks of The Federal Reserve System
Division of Consumer and Community Affairs
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, N.W.
Washington, D.C. 20551
(202) 452-3000
Federally Insured Non-Member State-Chartered Banks and
Saving Banks State-Chartered Banks and Saving Banks
Office of Consumer Affairs
Federal Deposit Insurance Corporation
550 Seventeenth Street, N.W.
Washington, D.C. 20429
(800) 934-3342 (202) 942-3100
National Banks
Community and Consumer Policy
Office of the Comptroller of the Currency
250 E Street, S.W.
Washington, D.C. 20219
(202) 874-4428
Federally Insured Savings And Loan Institutions and
Federally Chartered Savings Banks
Consumer Programs Division
Office of Thrift Supervision
1700 G street, N.W., Fifth Floor
Washington, D.C. 20552
(202) 906-6000
Mortgage Companies
Consumer Response Center
Bureau of Consumer Protection
Federal Trade Commission
6th Street and Pennsylvania Ave, N.W.
Washington, D.C. 20580
(202) 326-3761
Federal Credit Unions
Office of Consumer Programs
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314
(703) 518-6300
Ask your lender to help you fill out this check list. Plan A Plan B
Basic feature:    
Fixed annual percentage rate    
Variable annual percentage rate    
Index used and current value    
Amount of margin    
Current rate    
Frequency of rate adjustments    
Amount/length of discount (if any)    
Interest rate caps    
Length of plan:    
Draw period    
Repayment period    
Initial fees:    
Appraisal fee    
Closing costs    
Application fee    
Repayment Terms:    
During the draw period:    
Interest and principal payments    
Interest only payments    
Fully amortizing payments    
When the draw period ends:    
Balloon payment    
Renewal available    
Refinancing of balance by lender    

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