E-TC-1A (Rev. 12/12/07)
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IMPORTANT TERMS OF YOUR HOME EQUITY LINE OF CREDIT OR LOAN
This disclosure contains important information about Tri Counties Bank TriCo Line or Loan, Relationship Line or Loan and Rental
Line or Loan. Unless otherwise indicated, the information in this disclosure applies to all products, each referred to as a line of credit
or loan. You should read this disclosure carefully and keep a copy for your records.
- HOME EQUITY LINES OF CREDIT -
AVAILABILITY OF TERMS. All of the terms described below are subject to change. If these terms change (other than the annual
percentage rate) and you decide, as a result, not to enter into an agreement with us, you are entitled to a refund of any fees that you
have paid to us or anyone else in connection with your application.
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 with us.
APPLICABLE LAW. If your loan/line is approved and funded, the loan documents will provide that our relationship is to be
governed by California law, and that the venue for any action(s) between us will be in Butte County, California
IMPORTANT INFORMATION ABOUT OPENING A NEW ACCOUNT. To help the government fight the funding of terrorism
and money laundering activities, Federal law (Section 326 of the USA PATRIOT Act) requires all financial institutions to obtain,
verify, and record information that identifies each person who opens an account.
REPORTING INFORMATION TO CONSUMER CREDIT BUREAUS. We may report information about your account to credit
bureaus. Late payments, missed payments or other defaults on your account may be reflected in your credit report.
We will also advise any credit bureaus to whom we report that your credit line was "closed by consumer" if you either: (1) pay your
loan in full and request in writing that we close your account; or (2) your loan is paid in full by a third party (e.g., escrow or title
company) in connection with a request for release of any collateral which you may have given us to secure repayment.
POSSIBLE ACTIONS. We can terminate your line, require you to pay us the entire outstanding balance in one payment, and charge
you certain fees if:
00You engage in fraud or material misrepresentation in connection with the line.
00You do not meet the repayment terms.
00Your action or inaction adversely affects the collateral or our rights in the collateral.
In addition, we can refuse to make additional extensions of credit or reduce your credit limit if:
00The value of the dwelling securing the line declines significantly below its appraised value for purposes of the line.
00We reasonably believe that you will not be able to meet the repayment requirements due to a material change in your
financial circumstances.
00You are in default of a material obligation in the agreement.
00Government 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.
00A regulatory agency has notified us that continued advances would constitute an unsafe and unsound practice.
00The maximum annual percentage rate is reached.
00At any time we receive a request for a payoff amount from a title company or another lender, we will ask you to submit a
request to freeze your line of credit. Once a demand is submitted to us, you should discontinue use of your Credit Line
checks and Equity Access Card to insure that we report the correct amount due to the party requesting a payoff. Advances
made to your line after the payoff amount is reported to the requesting party could result in a delay of your payoff. If an
incorrect payoff is made to us, you will owe us any additional amounts advanced after receipt of a payoff demand even
though another lender has attempted to pay your loan in full.
The initial agreement permits us to make certain changes to the terms of the agreement at specified times or upon the occurrence of
specified events.
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MINIMUM PAYMENT REQUIREMENTS. You can obtain advances of credit for ten years (the "draw period"). During the draw
period, payments will be due monthly according to one of the following plans:
Initial Variable-rate Plan: Under the Initial Variable-rate Plan, your minimum monthly payment during the draw period will
equal the finance charges that accrued on the outstanding balance during the preceding month (an interest-only payment). However,
the interest rate may fluctuate during this period, as stated in the Variable-rate Information Section below.
Initial Fixed-rate Plan: Under the Initial Fixed-rate Plan, we may offer options of three-, five-, or seven-year fixed-rate
periods at the beginning of your Plan (subject to credit approval). Your minimum monthly payments during this initial fixed-rate
period will be interest-only.
Your initial fixed rate may not be based on the index and margin used for variable-rate adjustments.
When the initial fixed-rate period expires, the interest rate will become variable and will change in accordance with the index as
described in the Variable-rate Information Section below for the remainder of the draw period.
All Plans: After the draw period ends, you will no longer be able to obtain credit advances and must pay the outstanding
balance over fifteen years (the "repayment period") depending on the outstanding balance at the beginning of it. During the
repayment period, payments will be due monthly. Your minimum monthly payment will be an amount sufficient to fully repay your
principal balance at the current interest rate, in equal payments of principal and interest over the remaining term, or $150,
whichever is greater. Your payment amount will be recalculated every month.
MINIMUM PAYMENT EXAMPLE. The following examples illustrate how the minimum monthly payment will be determined
and the timing of the payments.
Under the Initial Variable-rate Interest-only Plan , if you made only the minimum monthly payments and took no other
credit advances, it would take 19 years and 1 month to pay off a credit balance of $10,000 at an ANNUAL PERCENTAGE RATE
of 11.75%. During the draw period, you would make 120 monthly payments varying between $99.79 and $93.36. During the
repayment period, you would make 108 monthly payments of $150.00 plus 1 final payment of $97.60.
Under the Initial Fixed-rate Interest-only Plan , assuming you chose a five-year initial fixed-rate, if you made only the
minimum payments and took no other credit advances, it would take 19 years and 1 month to pay off a credit balance of $10,000
at:
A fixed ANNUAL PERCENTAGE RATE of 7.75% during the first five years of the draw period; and
A variable ANNUAL PERCENTAGE RATE of 9.50 % for the remaining five years in the draw period and during
the repayment period.
During the draw period, you would make 60 monthly payments of $48.84 followed by 60 monthly payments of $80.68.
During the repayment period, you would make 109 monthly payments of $150.00 plus one final payment of $97.60.
FEES AND CHARGES. To open and maintain a line of credit, you must pay the following fees to us:
00Annual fee: $75.00 (charged annually beginning the second year).
00You may also pay certain fees to third parties to open a line. These fees generally total between $500 and $800.
Property insurance will be required. Flood insurance may also be required. If you request, we will give you an
itemization of the fees you will have to pay to third parties.
00A $500 fee will be charged if you close your account within three years of the origination date of your loan.
TRANSACTION REQUIRMENTS . The following transaction limitations apply to your Credit Line:
Minimum Draw Requirement: The minimum credit advance you can receive is $150.00. There is no minimum credit
advance if you access your credit line using your Equity Access Card.
Access Device Limitations: If you have received an Equity Access Card, you agree to be bound by the terms and conditions
as described in the document that will accompany your Equity Access Card. If you do not want an Equity Access Card after you
have received one, please call us at 1-800-922-8742 and immediately destroy the card.
Equity Access Card transactions at point-of-sale are limited to a maximum of $10,000 per day up to your available credit
limit, and no more than three transactions per day will be permitted. Your signature on the transaction receipt will be
required in order to complete any purchase. Cash advances up to your available limit may be obtained at any Tri Counties
Bank branch or at any other financial institution where cash advances are performed. Fees for any cash advance(s) will be
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assessed by the financial institution conducting the cash advance and may vary. There is no fee when you write a Credit Line
Check for cash at any Tri Counties Bank branch. If you have a Fixed Rate Loan Option loan attached to your Equity Line of
Credit, or a Fixed Rate Loan Option is established at a future date, an Equity Access Card will no longer be an eligible access
device.
ACH Restrictions: If a merchant attempts to convert your Credit Line Check to a debit entry in order to clear it through the
automated clearing house (ACH) (by scanning the check and having it electronically processed as a debit entry through the
ACH), the debit entry may be rejected and returned to the merchant unpaid. Due to ACH restrictions, we may not be able to
charge these entries to your Equity Credit Line. You agree not to hold us responsible for returning these entries unpaid to a
merchant.
ELECTRONIC INSTRUCTIONS.
We may accept instructions received by you via Internet electronic mail where you are
requesting an advance(s) against, or payment(s) to, your credit line. We will process your electronic instructions following the Bank's
standard security procedures.
TAX DEDUCTIBILITY. You should consult a tax advisor regarding the deductibility of interest and charges for the line.
FIXED RATE LOAN OPTION FEATURE. During the draw period, you can continue to advance funds on your credit line in the
form of a variable rate revolving line of credit, referred to as the "Variable Rate Portion." During the draw period, you may convert
portions of the balance of your credit line account to fixed rate installment loans referred to as "Fixed Rate Loan Options." You may
have a Variable Rate Portion and up to three Fixed Rate Loan Options outstanding under the Credit Line at any time during the draw
period. Once you have three Fixed Rate Loan Options established and active, you may establish an additional Fixed Rate Loan
Option if a prior Fixed Rate Loan Option is paid in full, but in no event may you establish a fourth or subsequent Fixed Rate Loan
Option until at least 365 days have passed since the establishment of the most recent Fixed Rate Loan Option.
The minimum loan amount for any fixed rate loan option is $5000 up to the available credit limit. You may choose a term of at least
12 months up to a maximum of 240 months (20 years) but in no event can any Fixed Rate Loan Option exceed the repayment period
maturity date of the account. You will be charged a $75.00 loan document preparation fee for each Fixed Rate Loan Option.
The minimum monthly payment on any Fixed Rate Loan Option will be an amount of principal and interest sufficient to repay the
balance of the Fixed Rate Loan Option over the term you selected at the interest rate then in effect on that Fixed Rate Loan Option.
The annual percentage rate will be based on the current index in effect on your Variable Rate Portion as of the date of conversion, plus
a different fixed-rate margin. We may offer promotional rates from time to time as well. Please ask us for the current corresponding
annual percentage rate for a Fixed Rate Loan Option.
A fixed rate we have recently offered on a Fixed Rate Loan Option is a daily periodic rate of 0.021890% which corresponds to an
ANNUAL PERCENTAGE RATE of 7.99%.
Credit lines having Fixed Rate Loan Options may not access funds using an Equity Access Card. (See Access Device
Limitations above).
PREFERRED RATES. Automated Repayment service from Tri Counties Bank checking account is optional on your account at any
time. If you agree to make monthly payments by automatic repayment service at the time your line or loan account is opened, the
initial interest rate on the fixed-rate or variable-rate line or Fixed Rate Loan Option will be decreased by .25% percentage point. If
you choose this option and the automated repayment service is cancelled for any reason by you or by the Bank, the interest rate will be
subject to a one-time increase of .25% percentage point.
VARIABLE-RATE INFORMATION. The following variable rate information applies according to one of the following
plans:
The Initial Variable Rate Plans have a variable-rate feature, and the annual percentage rate (corresponding to the periodic rate)
and the minimum payment can change as a result. Your initial variable rate may be discounted, or include a premium which means it
is not based on the index and margin used for later adjustments. The initial variable rate will be in effect for as little as one month
from when you credit line is opened.
The Initial Fixed Rate Plans start out with a fixed rate that is not necessarily based on the index and margin used for later rate
adjustments. When the fixed rate expires, the interest rate can begin to change as discussed below.
ANNUAL PERCENTAGE RATE INFORMATION. Your annual percentage rate will be based on one of the following
idiocies:
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Prime Plus Plans: The annual percentage rate is based on the value of an index. The index is the prime rate as published
in the Wall Street Journal, Western Edition. To determine the annual percentage rate that will apply to your line, we add a
margin to the value of the index. Ask us for the current index value, margin, discount and annual percentage rate.
Prime Minus Plans: The annual percentage rate is based on the value of an index. The index is the prime rate as published
in the Wall Street Journal, Western Edition. To determine the annual percentage rate that will apply to your line, we subtract a
margin from the value of the index. Ask us for the current index value, margin, discount and annual percentage rate.
The annual percentage rate for both the Initial Variable Rate Plan and the Initial Fixed Rate Plan include only interest and no other
costs. After you open a credit line, rate information will be provided on periodic statements that we will send to you.
VARIABLE-RATE CHANGES. The ANNUAL PERCENTAGE RATE can change each monthly billing cycle. The minimum
ANNUAL PERCENTAGE RATE, or "floor", for the Variable Rate Portion of your Account, (excluding the discounted initial rate
period, if applicable), will be within the range of 5.00% and 10.00%. As us about currently available rate "floors." The maximum
ANNUAL PERCENTAGE RATE that can apply is 18.75%. Apart from the rate "cap" and "floor", there is no annual or other limit on
the amount by which the rate can increase or decrease. A lower lifetime cap may be available depending upon your initial interest
rate. Ask your Tri Counties Bank representative for more information.
MAXIMUM RATE AND PAYMENT EXAMPLE. If you had an outstanding balance of $10,000 during the draw period, the
minimum monthly payment at the maximum ANNUAL PERCENTAGE RATE of 18.75% would be $159.25. This annual percentage
rate could be reached during the second billing period of the draw period. Under an Initial Fixed Rate Plan , the maximum annual
percentage rate could be reach during the 61st month of your credit line. 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 18.75% would be
$167.18. This annual percentage rate could be reached during the first billing period of the repayment period.
HISTORICAL EXAMPLE. The following table shows how the annual percentage rate and the minimum monthly payments for a
single $10,000 credit advance would have changed based on changes in the index over the past 15 years. The index values are from
July of each year. While only one payment amount per year is shown, payments might have varied during each year. The table
assumes that no additional credit advances were taken, that only the minimum payments were made each month, and that the rate
remained constant during each year. It does not necessarily indicate how the index or your payments will change in the future.
INITIAL VARIABLE RATE PLAN
YEAR INDEX
%
MARGIN
鹿
%
APR
%
MINIMUM
MONTHLY
PAYMENT
$
1993 6.00 1.00 7.00 59.45
1994 7.25 1.00 8.25 70.07
1995 8.75 1.00 9.75 82.81
1996 8.25 1.00 9.25 78.56
1997 8.50 1.00 9.50 80.68
1998 8.50 1.00 9.50 80.68
1999 8.00 1.00 9.00 76.44
2000 9.50 1.00 10.50 89.18
2001 6.75 1.00 7.75 65.82
2002 4.75 1.00 5.75 48.84
2003 4.00 3.50 7.50 150.002
2004 4.25 3.50 7.75 150.002
2005 6.25 3.50 9.75 150.002
2006 8.25 3.50 11.75 150.002
2007 8.25 3.50 11.75 150.002
鹿 This is a margin we have used recently
虏 This payment reflects a minimum payment amount of $150 per month.
鲁 This rate reflects an introductory fixed rate for the first six months of the draw period and is a rate we have used recently.
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FIVE-YEAR INITIAL FIXED-RATE PLAN3
YEAR INDEX
%
MARGINi
%
APR
%
MINIMUM
MONTHLY
PAYMENT
$
1993 6.00 1.00 3.594 30.495
1994 7.25 1.00 3.594 30.495
1995 8.75 1.00 3.594 30.495
1996 8.25 1.00 3.594 30.495
1997 8.50 1.00 3.594 30.495
1998 8.50 1.00 9.50 80.68
1999 8.00 1.00 9.00 76.44
2000 9.50 1.00 10.50 89.18
2001 6.75 1.00 7.75 65.82
2002 4.75 1.00 5.75 48.84
2003 4.00 3.50 7.50 150.002
2004 4.25 3.50 7.75 150.002
2005 6.25 3.50 9.75 150.002
2006 8.25 3.50 11.75 150.00虏
2007 8.25 3.50 11.75 150.00虏
鹿 This is a margin we have used recently.
虏 This payment reflects a minimum payment of $150.00 per month.
3
This table reflects a five-year Initial Fixed-rate Plan. Your plan may be different.
4
This rate reflects an introductory fixed-rate for the first five years of the draw period and is a rate we have used recently.
5
This payment reflects a fixed-rate interest-only minimum monthly payment.
Important Facts About Interest-Only Home Equity Lines of Credit
This information can help you decide if an interest-only home equity line of credit is right for you. These mortgages can be
complicated. If you do not understand how they work, you should not sign any loan contracts, and you might want to consider other
types of loans.
Interest-Only Home Equity Lines of Credit allow you to pay only the interest on the money you borrowed for the first few years of
the mortgage (the "interest-only period").
If you pay only the amount due, then at the end of the interest-only period:
00/span>
You will still owe the original amount you borrowed.
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Your monthly payment will increase because you must pay back the principal as well as interest. Your payment could increase
even more if interest rates increase.
Additional Information
忙 Home Equity - If you make interest-only payments, your payments are not building home equity. This may make it harder to
refinance your mortgage or to obtain funds from selling or refinancing your home.
忙 Prepayment Penalties - Some mortgages require you to pay a lump-sum prepayment penalty if you sell your home or refinance
during the first few years of the loan. You should find out if your mortgage has a prepayment penalty, how it works, and how much
it could be.
忙 No Doc/Low Doc Loans - "Reduced documentation" or "stated income" loans usually have higher interest rates or other costs
compared to "full documentation" loans that require you to verify your income and assets.
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APPRAISAL NOTICE
IF WE USED AN APPRAISAL REPORT IN CONNECTION WITH YOUR APPLICATION FOR
CREDIT, YOU HAVE THE RIGHT TO A COPY OF THE APPRAISAL REPORT WE USED. IF
YOU WISH A COPY, PLEASE WRITE US AT:
Tri Counties Bank Loan Center
P.O. Box 2178
Chico, CA 95927
WE MUST HEAR FROM YOU NO LATER THAN 90 DAYS AFTER WE NOTIFY YOU ABOUT
THE ACTION TAKEN ON YOUR CREDIT APPLICATION OR YOU WITHDRAW YOUR
APPLICATION.
IN YOUR LETTER TO US, YOU MUST STATE YOUR NAME, MAILING ADDRESS, AND THE
ADDRESS OF THE APPRAISED PROPERTY.
WE MAY REQUIRE YOU TO REIMBURSE US FOR THE COST OF THE APPRAISAL AND ANY
COSTS ASSOCIATED WITH PHOTOCOPYING AND/OR MAILING THE COPY TO YOU.
- HOME EQUITY LOANS -
ADJUSTABLE RATE MORTGAGE LOAN PROGRAM DISCLOSURE
(PREFERRED RATE PROGRAM)
This disclosure described the features of the Preferred Rate Loan you are considering. Because a Preferred Rate Loan secured by your
home is considered an Adjustable Rate Mortgage (ARM) program, we are furnishing you this ARM Loan Program Disclosure
Statement.
00Your interest rate and monthly payment can change under this loan program only once.
00During the term of your loan, interest will accrue at a preferred rate based upon your having the monthly payments on your
loan automatically deducted from your Tri Counties Bank checking account.
00Ask us for the current preferred rate for the loan you are considering, as well as the prevailing rate for loans without an
automatic payment feature.
00If you or we should terminate your automatic payment deductions from your Tri Counties Bank deposit account, or if you or
we close the deposit account, we will immediately increase the interest rate on your loan by one quarter of one percent
(.25%). After that, the higher interest rate will apply to your loan and your monthly payments will increase.
00You will be notified in writing at least 25 days before the due date of the payment at the new level. This notice will contain
information about the current and prior interest rates, new payment amount and the loan balance.
- WHAT YOU SHOULD KNOW ABOUT HOME EQUITY LINES OF CREDIT -
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
law00epending on your specific situation00ou 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 a 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 amounts you've borrowed, plus
interest, could mean the loss of your home.
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What is a home equity line of credit?
A home equity line of credit 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 credit00our credit limit, the maximum amount you may
borrow at any one time under the plan. Many lenders set the credit limit on a home equity line by taking a percentage (say, 75 percent)
of the home's appraised value and subtracting from that the balance owed on the existing mortgage. For example,
Appraisal value of home
$100,000
Percentage
x 75%
Percentage of appraised value
=$75,000
Less balance owed on mortgage
-$40,000
Potential credit
$35,000
In determining your actual credit limit, the lender will also consider your ability to repay, by looking at your income, debts, and other
financial obligations as well as your credit history.
Many home equity plans set a fixed period during which you can borrow money, such as 10 years. At the end of this "draw period, "
you may be allowed to renew the credit line. If your plan does not allow renewals, you will not be able to borrow additional money
once the period has ended. Some plans may call for payment in full of any outstanding balance at the end of the period. Others may
allow repayment over a fixed period (the "repayment period"), for example, 10 years.
Once approved for a home equity line of credit, you will most likely be able to borrow up to your credit limit whenever you want.
Typically, you will use special checks to draw on your line. Under some plans, borrowers can use a credit card or other means to draw
on the line.
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 plans may also require that you take an initial advance
when the line is set up.
What should you look for when shopping for a plan?
If you decide to apply for a home equity line of credit, look for the plan that best meets your particular needs. Read the credit
agreement carefully, and examine the terms and conditions of various plans, including the annual percentage rate (APR) and the costs
of establishing the plan. The APR for a home equity line is based on the interest rate alone and 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 related plan features
Home equity lines of credit typically involve variable rather than fixed interest rates. The variable rate must be based on a publicly
available index (such as the prime rate published in some major daily newspapers or a U.S. Treasury bill rate); the interest rate for
borrowing under the home equity line changes, mirroring fluctuations in the value of the index. Most lenders cite the interest rate you
will pay as the value of the index at a particular time plus a "margin," such as 2 percentage points. Because the cost of borrowing is
tied directly to the value of the index, it is important to find out which index is used, how often the value of the index changes, and
how high it has risen in the past as well as the amount of the margin.
Lenders sometimes offer a temporarily discounted interest rate for home equity lines00 rate that is unusually low and may last for
only an introductory period, such as 6 months.
Variable-rate plans secured by a dwelling must, by law, have a ceiling (or cap) on how much your interest rate may increase over the
life of the plan. Some variable-rate plans limit how much your payment may increase and how low your interest rate may fall if
interest rates drop.
Some lenders allow you to convert from a variable interest rate to a fixed rate during the life of the plan, or to convert all or a portion
of your line to a fixed-term installment loan.
Plans generally permit the lender to freeze or reduce your credit line under certain circumstances. For example, some variable-rate
plans may not allow you to draw additional funds during a period in which the interest rate reaches the cap.
Costs of establishing and maintaining a home equity line
Many of the costs of setting up a home equity line of credit are similar to those you pay when you buy a home. For example,
00A fee for a property appraisal to estimate the value of your home
00An application fee, which may not be refunded if you are turned down for credit
00Up-front charges, such as one or more points (one point equals 1 percent of the credit limit)
00Closing costs, including fees for attorneys, title search, and mortgage preparation and filing; property and title insurance; and
taxes.
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In addition, you may be subject to certain fees during the plan period, such as annual membership or maintenance fees and 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 initial charges would substantially increase the cost of the funds borrowed. On the other hand, because the lender's risk is
lower than for other forms of credit, as your home serves as collateral, annual percentage rates for home equity lines are generally
lower than rates for other types of credit. The interest you save could offset the costs of establishing and maintaining the line.
Moreover, some lenders waive some 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 the money you borrow. Some plans set minimum payments that cover a
portion of the principal (the amount you borrow) plus accrued interest. But (unlike with the typical installment loan) the portion that
goes toward principal may not be enough to repay the principal by the end of the term. Other plans may allow payment 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
amount when the plan ends.
Regardless of the minimum required payment, you may choose to pay more, and many lenders offer a choice of payment options.
Many consumers 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 plan00hether you pay some, a little, or none of the principal amount of
the loan00hen 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.
If your plan has a variable interest 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 monthly payments would be $83. If the rate rises over
time to 15 percent, your monthly payments will increase to $125. Similarly, if you are making payments that cover interest plus some
portion of the principal, your monthly payments may increase, unless your agreement calls for keeping payments the same throughout
the plan period.
If you sell your home, you will probably be required to pay off your home equity line in full immediately. If you are likely to sell your
home in the near future, consider whether it makes sense to pay the up-front costs of setting up a line of credit. Also keep in mind that
renting your home may be prohibited under the terms of your agreement.
Lines of credit vs. traditional second mortgage loans
If you are thinking about a home equity line of credit, you might also want to consider a traditional second mortgage loan. A second
mortgage provides you with a fixed amount of money repayable over a fixed period. In most cases the payment schedule calls for
equal payments that will pay off the entire loan within the loan period. You might consider a second mortgage 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 both the APR and other
charges. Do not, however, simply compare the APRs, because the APRs on the two types of loans are figured differently:
00The APR for a traditional second mortgage loan takes into account the interest rate charged plus points and other finance
charges.
00The APR for a home equity line of credit is based on the periodic interest rate alone. It does not include points or other
charges.
Disclosures from lenders
The federal 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 (other than a variable-rate feature)
changes before the plan is opened, the lender must return all fees if you decide not enter into the plan because of the change.
When you open a home equity line, the transaction puts your home at risk. If the home involved is your principal dwelling, the Truth
in Lending Act gives you 3 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 lender in writing within the 3-day period. The lender must then cancel its security interest
in your home and return all fees00ncluding any application and appraisal fees00aid to open the account.
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GLOSSARY
00Annual membership or maintenance fee - An annual charge for having the line of credit available. Charged regardless of
whether or not the line is used.
00Annual percentage rate (APR) - The cost of credit on a yearly basis expressed as a percentage.
00Application fee - Fees that are paid upon application. May include charges for property appraisal and a credit report.
00Balloon payment - A lump-sum payment that may be required when the plan ends.
00Cap - A limit on how much the variable interest rate may increase during the life of the plan.
00Closing costs - Fees paid at closing, including attorneys fees, fees for preparing and filing a mortgage, fees for title search, taxes,
and insurance.
00Credit limit - The maximum amount that may be borrowed under the home equity plan.
00Equity - The difference between the fair market value (appraised valued) of the home and the outstanding mortgage balance.
00Index - Published rate that serves as a base for the interest rate charged on a home equity line and also as the base for rate
changes used by the lender.
00Interest rate - The periodic charge, expressed as a percentage, for use of credit.
00Margin - The number of percentage points the lender adds to the index rate to determine the annual percentage rate.
00Minimum payment - The minimum amount that you must pay (usually monthly) on your account. Under some plans, the
minimum payment may cover interest only; under others, it may include both principal and interest.
00Points - One point is equal to 1 percent of the amount of the credit line. Points must usually be paid at closing and are in addition
to monthly interest.
00Security interest - An interest that a lender takes in the borrower's property to ensure repayment of a debt.
00Transaction fee - A fee charged each time you draw on your credit line.
00Variable rate - An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.
download IMPORTANT TERMS OF YOUR HOME EQUITY LINE OF CREDIT OR LOAN
