EQUAL CREDIT OPPORTUNITY ACT (ECOA) NOTICE
I (We) acknowledge receipt of the notices contained herein:
1. ECOA Notice - The Federal Equal Credit Opportunity Act prohibits creditors from discriminating
against credit applicants on the basis of race, color, religion, national origin, sex, marital status, or
age (provided that the applicant has the capacity to enter into a binding contract): because all or
part of the applicant's income derives from any public assistance program; or because the applicant
has in good faith exercised any right under the Consumer Credit Protection Act. The Federal
agency that administers compliance with this law concerning this creditor is Regional Director,
National Credit Union Administration, Washington, DC 20410.
2. You may apply for the loan in your own name or you may wish your spouse (if any) to be a co-
applicant. There is no requirement for your spouse to apply or otherwise become obligated to repay
the debt except to the extent that your spouse's income and/or assets are necessary to qualify you
for the loan.
3. You may use your birth-given first name, a surname that is birth-given, obtained by marriage, or
4. Information about a spouse need not be revealed unless the spouse will be contractually liable on
the debt or the spouse's income and/or assets are to be relied on.
5. No applicant or co-applicant is required to reveal income from alimony, child support or separate
maintenance unless he or she chooses to rely on such income for purposes of showing credit
worthiness. Designation of a title such as Mr., Mrs., or Miss is also optional.
6. You may not be asked to state your race, national origin, or sex on an application EXCEPT where
such information is required to be asked, along with information about marital status and age, for
monitoring by the Federal agencies who administer compliance with Regulation B.
I/We acknowledge and affirm that I/we have read the above and have received a copy of this
Applicant Date Co-Applicant Date
1055 West Mercury Blvd.
P.O. Box 7463
Hampton, Virginia 23666-0463 s (757) 827-7200
ConmarSystems, Inc., Peachtree City, GA 30269 - EFORM 47140-C
1055 W. Mercury Blvd.
P.O. Box 7463
Hampton, VA 23666-0463
IMPORTANT TERMS OF OUR HOME EQUITY LINE OF
CREDIT/HOME EQUITY VISA GOLD CARD
This disclosure contains important information about our Home Equity Line of Credit/Visa Gold Card (the Agreement). You should
read it carefully and keep a copy for your records.
1. AVAILABILITY OF TERMS: All of the terms described below are subject to change. If any of 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 paid to us or anyone else in connection with your application.
2. SECURITY INTEREST: We will take a security interest in your home. You could lose your home if you do not meet the obligations
in your agreement with us.
3. POSSIBLE ACTIONS:
Termination and Acceleration. We can terminate the Home Equity Line of Credit/Visa Gold Card and require you to pay us
the entire outstanding balance in one payment, and charge you with certain fees, if any of the following happen:
(a) You commit fraud or make a material misrepresentation at any time in connection with this Agreement. This can include,
for example, a false statement about your income, assets, liabilities, or any other aspect of your financial condition, or the
use of funds for prohibited purposes.
(b) You do not meet the repayment terms of this Agreement.
(c) Your action or inaction adversely affects the collateral for the Line of Credit or our rights in the collateral. This can include,
for example, failure to maintain required insurance, waste or destructive use of the dwelling, failure to pay taxes, transfer of
title or sale of the dwelling, creation of a senior lien on the dwelling without our permission, and foreclosure by the holder of
Suspension or Reduction. In addition to any other rights we may have, we can suspend additional extensions of credit or
reduce your credit limit during any period in which any of the following are in effect:
(a) The value of your dwelling declines significantly below the dwelling s appraised value for purposes of the Line of Credit.
This includes, for example, a decline such that the initial difference between the credit limit and the available equity is
reduced by fifty percent and may include a smaller decline depending on the individual circumstances.
(b) We reasonably believe that you will be unable to fulfill your payment obligations under the agreement due to a material
change in your financial circumstances.
(c) You are in default under any material obligation of this Agreement. We consider all of your obligations to be material.
Categories of material obligations include the events described above under Termination and Acceleration, obligations to
pay fees and charges, obligations and limitations on the receipt of credit advances, obligations concerning maintenance or
use of the dwelling, obligations to pay and perform the terms of any other deed of trust, mortgage or lease of the dwelling,
obligations to notify us and to provide documents or information to us (such as updated financial information), obligations
to comply with applicable laws (such as zoning restrictions). No default will occur until we mail or deliver a notice of default
(d) We are precluded by government action from imposing the ANNUAL PERCENTAGE RATE provided for under this
(e) The priority of our security interest is adversely affected by government action to the extent that the value of the security
interest is less than 120 percent of the Credit Limit.
(f) We have been notified by governmental authority that continued advances may constitute an unsafe and unsound
(g) The maximum ANNUAL PERCENTAGE RATE under this Agreement is reached.
Change in Terms. We may make changes to the terms of this Agreement if you agree to the change; if the change benefits
you or is insignificant, or upon the occurrence of specific events specified in the Agreement.
4. MINIMUM PAYMENT: DRAW PERIOD - You can obtain advances of credit during the draw period. The draw period is ten (10)
years after the opening date. The minimum payment during the draw period is calculated based upon 1.00% of your new total
outstanding balance on the last day of each monthly billing cycle or $50.00, whichever is greater. Negative amortization can occur
during the draw period. In addition, any time your total new balance exceeds your Credit Limit, you must immediately pay the excess
on demand. REPAYMENT PERIOD - The repayment period begins after the expiration of the ten (10) year draw period. You will no
longer be able to obtain credit advances during the repayment period. The repayment period is calculated for a ten (10) year
amortization schedule. Since negative amortization is not allowed during the repayment period, the minimum monthly payment due
during the repayment period will be recalculated monthly to represent a ten (10) year amortization schedule based upon the current
interest rate in effect on the first day of each monthly billing cycle. The minimum monthly payment will be the greater of this
recalculation or $50.00. Your monthly statement will indicate any changes in your required monthly payment based upon this ten (10)
year amortization. During both the draw and repayment periods, regular payments will be due.
5. NEGATIVE AMORTIZATION: Under some circumstances during the draw period your payments will not cover the finance
charges that accrue and "negative amortization" will occur. Negative amortization will increase the amount that you owe us and
reduce your equity in your home.
6. MINIMUM PAYMENT EXAMPLE: If you made only the minimum payment and took no other Credit Advances, it would take 20
years to pay off a Credit Advance of $10,000 at an ANNUAL PERCENTAGE RATE of 5.25%. You would make 120 monthly
payments varying between $100.00 - $51.10 during the draw period. You would make 119 monthly payments of $54.83, followed by
a final payment of $53.32, during the repayment period assuming there is no change in the index.
7. FEES AND CHARGES: To open and maintain a Line of Credit, you must pay the following fees to us: None
If any fees or charges are applicable, they are as follows:
Appraisal Fee $ Release of Satisfaction $
Attorney Fee $ Title Insurance $
Recording Fee $ (State) Title Examination $
Recording Fee $ (City) Document Preparation $
Application Fee $ Other Fees $
8. THIRD PARTY FEES: You also must pay certain fees to third parties. These fees vary from jurisdiction to jurisdiction depending
on the maximum Line of Credit limit. These fees generally range between $313.00 to $725.00. If you ask, we will give you an
itemization of the fees you will have to pay to third parties.
9. MINIMUM ADVANCE REQUIREMENT:
Initial Advance Requirement - $ 10,000.00 If Credit Union pays closing costs.
Initial Advance Requirement - $ 5,000.00 If Member pays closing costs.
Subsequent Advance - $ -0-
Personal Advance in House - $ 500.00
ConmarSystems, Inc., Peachtree City, GA 30269 16056-2 Rev. 12/11
10. MINIMUM BALANCE REQUIREMENT: None
11. TAX DEDUCTIBILITY: You should consult a tax advisor regarding the deductibility of interest and charges for the Line of Credit.
12. PROPERTY INSURANCE: You must carry insurance on the property that secures the Agreement.
13. DISCOUNTED ANNUAL PERCENTAGE RATE: If the initial Annual Percentage Rate is discounted, it is not based on the index
and margin used for later rate adjustments.
14. VARIABLE RATE FEATURE: Your Home Equity Line of Credit/Home Equity Visa Gold Card has a variable rate feature. The
annual percentage rate (corresponding to the periodic rate) and the minimum payment amount can change as a result. The annual
percentage rate does not include costs other than interest.
The Index: The annual percentage rate is based on the value of an Index (referred to in this disclosure as the "Index"). The
Index is the Prime Rate as published in the Wall Street Journal. When a range of rates has been published, the highest
applicable rate has been selected. Information about the Index is published at least weekly in the Wall Street Journal's Money
Rates table. We will use the most recent Index value available to us as of 1 day before the date of any annual percentage rate
adjustment. HOME EQUITY LINE OF CREDIT: Any new rate will be effective the day following a change in the Index.
VISA GOLD CARD: Any new rate will be effective the first day of the billing cycle in the month following a change in the
Index. If the Index is no longer available, we will choose a new Index and Margin. The new Index will have an historical
movement substantially similar to the original Index, and the new Index and Margin will result in an annual percentage rate that
is substantially similar to the rate in effect at the time the original Index becomes unavailable.
ANNUAL PERCENTAGE RATE: To determine the annual percentage rate that will apply to your account, we add a Margin to
the value of the Index. A change in the Index rate generally will result in a change in the annual percentage rate. The amount
that your annual percentage rate may change also may be affected by the lifetime annual percentage rate limits, as discussed
below. Forgo Rate Increases: If we forgo an annual percentage rate increase, at the time of a later adjustment we may return
to the full Index value plus Margin.
Please 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 we send you.
15. FREQUENCY OF ANNUAL PERCENTAGE RATE ADJUSTMENTS: For Home Equity Line of Credit balances, your annual
percentage rate can change on the first day following a change in the Index. For Visa Gold Credit Card balances, your annual
percentage rate can change monthly on the first day of the cycle. There is no limit on the amount by which the annual percentage
rate can change during any one year period. However, under no circumstances will your ANNUAL PERCENTAGE RATE exceed
the greater of 15.000% per annum (or the statutory limit) or go below 5.25% per annum.
16. MAXIMUM RATE AND PAYMENT EXAMPLE: 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 15.000% would be $100.00. This annual
percentage rate could be reached after the first month of the draw period. 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 15.000%
would be $161.33. This annual percentage rate could be reached after the first month of the repayment period.
17. PREPAYMENT: You may prepay all or any amount owing under the Agreement at any time without penalty.
HISTORICAL EXAMPLE: The example below shows how the annual percentage rate and the minimum payments for a single
$10,000.00 Credit Advance would have changed based on changes in the Index over the last 15 years.
While only one payment per year is shown, payments may have varied during each year. Different outstanding principal balances
could result in different amortization periods, repayment periods, margins, annual percentage rate and payment amounts.
The table assumes that no additional Credit Advances were taken and that only the minimum payment was made. It does not
necessarily indicate how the Index or your payments would change in the future.
Year (as of the first business day in January) PERCENTAGE Payment
1998. . . . . . . . . . . . . . 1 . . . . . . . . . . . . . . . . . . . . . 8.500 1.000 9.500 100.00
1999. . . . . . . . . . . . . . 2 . . . . . . . . . . . . . . . . . . . . . 7.750 1.000 8.750 97.53
2000. . . . . . . . . . . . . . 3 . . . . . . . . . . . . . . . . . . . . . 8.500 1.000 9.500 94.40
2001. . . . . . . . . . . . . . 4th . . . . . . . . . . . . . . . . . . . . . 9.500 1.000 10.500 92.07
2002. . . . . . . . . . . . . . 5th . . . . . . . . . . . . . . . . . . . . . 4.750 1.000 5.750 90.70
2003. . . . . . . . . . . . . . 6 . . . . . . . . . . . . . . . . . . . . . 4.250 1.000 5.250 85.19
2004. . . . . . . . . . . . . . 7 . . . . . . . . . . . . . . . . . . . . . 4.000 1.000 5.250** 79.61
2005. . . . . . . . . . . . . . 8 . . . . . . . . . . . . . . . . . . . . . . 5.250 1.000 6.250 74.40
2006. . . . . . . . . . . . . . 9 . . . . . . . . . . . . . . . . . . . . . 7.250 1.000 8.250 70.24
2007. . . . . . . . . . . . . 10 . . . . . . . . . . . . . . . . . . . . . 8.250 1.000 9.250 67.65
2008. . . . . . . . . . . . . . Enters Repayment Period . . . 7.250 1.000 8.250 80.71
2009. . . . . . . . . . . . . . 1 year . . . . . . . . . . . . . . . . . 3.250 1.000 5.250* 71.44
2010. . . . . . . . . . . . . . 2 . . . . . . . . . . . . . . . . . . . . 3.250 1.000 5.250** 71.44
2011. . . . . . . . . . . . . . 3rd . . . . . . . . . . . . . . . . . . . . . 3.250 1.000 5.250** 71.44
2012. . . . . . . . . . . . . . 4th . . . . . . . . . . . . . . . . . . . . . 3.250 1.000 5.250** 71.44
* This is a margin we have used recently. Your margin may be different.
** This rate reflects the 5.25% minimum rate limitation.
ConmarSystems, Inc., Peachtree City, GA 30269 16056-2 Rev. 12/11
Home Equity Line of Credit (HELOC)/Visa Gold Card
Statement of Information
C o mpet itiv e adjustable rates: LTV s = < 80.00% = Prim e + 0% ( Prem ier Memb ers)
LTV s = < 79.99% = Prim e + 1%
LTV s = 80% to 89.99% = Prim e + 2%
LTV s = 90% to 100% = Prime + 3%
5.25% minim um interest rate
15% maximum in terest rate
Minim um Credit Lin e ( lo an amt) - $10,000 if mem ber pays clos in g cost s o r $15,000** if LF CU pay s clo sing c ost s.
Minim um In itial Advan ce Am ount - $5,000 if m em ber pays c lo sin g co st s o r $10,000** if LFC U pays clo sing
No prepaym en t penalty
HELOC must b e sec ured b y yo ur prim ary residen ce, seco nd ho me or in vestme nt property . (HE LOCs on
in vestme nt ( ren tal) property require 1.5% of th e approv ed Line of Cre dit paid at c lo sing.**)
VISA G old Card up to $20,000.00 is also available on your H ome Equity Lin e of Credit.
The ba sic HELOC:
HELOC - In terest rate may be adj ust ed as th e in dex changes.
Visa G old C ard In terest rate may b e adjust ed mo nth ly, if nec essary.
Minim um paymen t during t he draw period is based o n 1.00% of th e n ew total balan ce each m onth o r $50.00,
wh ich ev er is g reater.
The draw pe riod is for 10 years from t he date of th e loan closin g. A fte r th e e xpiration of the 10-year draw
perio d, the re pay men t perio d will run an additional 10 years. The com bination of th e draw perio d an d
re pay ment period can not exceed 20 y ears.
Maximum Lo an Am ount (C redit Line) is 100% of yo ur ho me s assessed or appraised v alue, minus the
o ut standing balance of any existing m ortgag e lien s (80% fo r con dom iniums) ; 90% fo r townh ouses and 2 nd
h om es, 70% for inv estm ent properties wh ere LFC U h olds a seco nd lie n position or 80% fo r inv est ment
propert ies where LFCU holds a f irst lien po sition.
I f y ou cho ose to can cel y our loan re quest e it her b y wit hdrawing a loan application in pro cess o r not c losing on
an appro ved lo an application , yo u agree to reim burse Lang ley Federal Credit U n io n (LFCU ) fo r all cost s in curred up
t o t he t im e of can ce llation . At th at tim e , LF CU will provide y ou wit h an itemized statemen t o f the cost s/fee s due. By
sig nin g belo w, yo u h ereby autho rize LF C U to debit your Prime Share or Sh are D raf t acco unt fo r an y and all cost s
in curred by LFCU at the time of canc ellatio n, in cludin g but n ot lim it ed to the cost of any appraisal, property
in spect io n, c redit report, and/or flo od in suran ce , if applic ab le.
I ack no wledge receipt of a copy of th is St at em en t of In formation and agree t o t he conditions of cancellation as
stated in the precedin g parag raph.
D ate: Ac know ledg ed b y:
Pr ime refer s to the prime lending rate of commercial banks published in the money r ate column in the Wall Str eet Journal.
The loan account must be maintained until the interest paid equals the amount of the closing costs. If the loan a ccount is te rminated, the
differ ence between the interes t paid and the clos ing costs will be r eimbursed to LFCU
Rates are sub ject to change until LFCU receives a completed loan application.
**NOTE: Langley Federal Credit Union will pay all legal fees a nd certain other closing costs that are typical for the local area for this type of
loan. This does no t include the 1.5% (of the loan amount) char ged on loans made agains t investment property, a ny additional cos ts for out-of-
town closing s and appr aisals, property repair requirements, additional clos ing fees for lien ex ceptions, termite/moisture
inspections/certifica tions, flood insurance, final inspection fees and/o r well/septic certification. All such additional costs, if any, will be paid
at closing by the member .
LOAN APPLICATION - HOME EQUITY
DATE APPLICANT MEMBER NO. PREVIOUS NUMBER CO-APPLICANT MEMBER NO.
CREDIT UNION LOAN Features applied for:
Line of Credit Visa Gold
Limit $ $
Collateral Secured Other
Requested Amount $
Purpose of Loan
Collateral Offered Owned By
MARRIED APPLICANTS MAY APPLY FOR INDIVIDUAL ACCOUNTS. INDICATE BELOW THE TYPE OF CREDIT WANTED
INDIVIDUAL CREDIT: Complete Applicant Section. Complete Co-Applicant section if the following applies: You live in a community property state (AK, AZ, CA, LA, ID, NM, NV, P.R., TX, WA, WI)
or your spouse will use the account - You are relying on your spouse/Co-Applicant’s income as a source of repayment.
JOINT CREDIT: Provide information about both of you.
Complete for secured credit or if you live in a community property state Complete for secured credit or if you live in a community property state
MARRIED SEPARATED UNMARRIED (Single, Divorced, Widowed) MARRIED SEPARATED UNMARRIED (Single, Divorced, Widowed)
APPLICANT CO-APPLICANT CO-SIGNER
FIRST NAME INITIAL LAST NAME FIRST NAME INITIAL LAST NAME
BIRTHDATE SOCIAL SECURITY # NO. OF DEP. AGE OF DEPENDENTS BIRTHDATE SOCIAL SECURITY # NO. OF DEP. AGE OF DEPENDENTS
CURRENT STREET ADDRESS APT. NO. SINCE CURRENT STREET ADDRESS APT. NO. SINCE
CITY STATE ZIP CITY STATE ZIP
PROPERTY VALUE HOME PHONE NO. PROPERTY VALUE HOME PHONE NO.
OWN RENT $ OWN RENT $
FORMER STREET ADDRESS (if less than 5 years at present address) YRS. THERE FORMER STREET ADDRESS (if less than 5 years at present address) YRS. THERE
CITY STATE ZIP CITY STATE ZIP
PERMANENT HOME OF RECORD (STREET, CITY, STATE, ZIP) PERMANENT HOME OF RECORD (STREET, CITY, STATE, ZIP)
EMPLOYMENT AND INCOME If self employed, attach financial statement and income tax return.
CURRENT EMPLOYER HIRE DATE CURRENT EMPLOYER HIRE DATE
CITY STATE ZIP WORK PHONE NO. CITY STATE ZIP WORK PHONE NO.
STATUS (CIVILIAN/MILITARY) TITLE/GRADE ETS/CONTRACT DATE STATUS (CIVILIAN/MILITARY) TITLE/GRADE ETS/CONTRACT DATE
MONTHLY GROSS INCOME SUPERVISOR MONTHLY GROSS INCOME SUPERVISOR
FORMER EMPLOYER- Name/Address/Phone (if less than 2 years at current employment) YRS. FORMER EMPLOYER- Name/Address/Phone (if less than 2 years at current employment) YRS.
OTHER INCOME You need not list income from alimony, child support or separate maintenance unless you wish it considered for purposes of granting this credit.
SOURCE OF OTHER INCOME 1 PHONE NUMBER MO. GROSS INCOME SOURCE OF OTHER INCOME 1 PHONE NUMBER MO. GROSS INCOME
SOURCE OF OTHER INCOME 2 PHONE NUMBER MO. GROSS INCOME SOURCE OF OTHER INCOME 2 PHONE NUMBER MO. GROSS INCOME
RELATIVE A = Applicant C = Co-Applicant
NAME/ADDRESS/PHONE OF NEAREST RELATIVE NOT LIVING WITH YOU (INDICATE “A” OR “C” RELATIONSHIP
ASSETS AND DEPOSITS LIST ALL ASSETS - ATTACH SEPARATE SHEET IF NECESSARY A = Applicant C = Co-Applicant
CHECK APPROXIMATE CHECK APPROXIMATE
TYPE FINANCIAL INSTITUTION TYPE FINANCIAL INSTITUTION
A C BALANCE A C BALANCE
CHECKING $ $
SAVINGS $ CD’S $
IRA’S $ OTHERS $
CAR 1: YEAR/MAKE VALUE $ CAR 2: YEAR/MAKE VALUE $
REAL ESTATE VALUE $ OTHER VALUE $
ConmarSystems, Inc., Peachtree City, GA 30269 – EFORM 52674-3a
Please indicate appropriate box below with corresponding code. Be sure to list all open accounts with or without a balance. Attach separate
CREDIT INFORMATION sheet if necessary. A = Applicant C = Co-Applicant
CHECK TYPE LENDERS (OR OTHER OBLIGATIONS) NAME MONTHLY
ACCOUNT NUMBER BALANCE
A C OF LOAN LIST ALL OTHER CREDIT UNIONS AND BANKS PAYMENTS
Please answer the following questions. If a yes answer is given, explain on attached sheet.
A C A C
Please indicate A = Applicant C = Co-Applicant
YES NO YES NO YES NO YES NO
1. Have you ever filed a petition for bankruptcy?
5. Is any income you have listed likely to reduce in the next two years?
2. Have you ever had any auto, furniture or property repossessed?
6. Have you ever had credit in any other name?
3. Are you a co-maker or co-signer on any loan or lease?
7. Have you any suits pending, judgements filed, alimony or support
awards against you?
4. Do you have any past due bills?
HOME EQUITY INFORMATION
STREET ADDRESS, CITY, STATE, ZIP TITLE IS IN NAME(S) OF
TYPE (HOUSE, CONDO, APARTMENT, FARM, ETC.) LEGAL DESCRIPTION OF PROPERTY (REFER TO DEED)
TRACT LOT BOOK PAGE
NAME OF MORTGAGE LENDER ASSESSED VALUE
ADDRESS OF MORTGAGE LENDER BALANCE PRESENT ON FIRST MORTGAGE MONTHLY PAYMENT
You agree that everything stated in this application is true and correct to the best of your knowledge. The Credit Union or its agent is authorized to investigate your credit worthiness, employment
history, and to obtain a credit report and to answer questions about their credit history with you. You understand that any false or misleading statements in your application may cause any loan to be in
default. The USA Patriot Act requires that we obtain, verify, and record information that identifies each person who opens an account.
APPLICANT CO-APPLICANT CO-SIGNER SIGNATURE (check one)
DATE (Seal) DATE (Seal)
Interviewer/Processor Approved By:
ConmarSystems, Inc., Peachtree City, GA 30269 - EFORM 52674-3b
The following is a web version of a brochure, "When Your Home is on the Line, What You Should Know about
Home Equity Lines of Credit” that is available as a link from our website.
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 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
What is a home equity line of credit?
What should you look for when shopping for a plan?
Costs of establishing and maintaining a home equity line
How will you repay your home equity plan?
Lines of credit vs. traditional second mortgage loans
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 credit--your 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:
Appraised value of home $100,000
Percentage X 75%
Percentage of appraised value =$
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 lines--a 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.
A fee for a property appraisal to estimate the value of your home
An application fee, which may not be refunded if you are turned down for credit
Up-front charges, such as one or more points (one point equals 1 percent of the credit limit)
Closing costs, including fees for attorneys, title search, and mortgage preparation and filing; property and
title insurance; and taxes.
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 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
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
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:
The APR for a traditional second mortgage loan takes into account the interest rate charged plus points and
other finance charges.
The 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 to 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
fees--including any application and appraisal fees--paid to open the account.
Glossary / Where to go for help / Checklist
Annual membership or maintenance fee
An annual charge for having the line of credit available. Charged regardless of whether or not the line is used.
Annual percentage rate (APR)
The cost of credit on a yearly basis expressed as a percentage.
Fees that are paid upon application. May include charges for property appraisal and a credit report.
A lump-sum payment that may be required when the plan ends.
A limit on how much the variable interest rate may increase during the life of the plan.
Fees paid at closing, including attorneys fees, fees for preparing and filing a mortgage, fees for title search,
taxes, and insurance.
The maximum amount that may be borrowed under the home equity plan.
The difference between the fair market value (appraised value) of the home and the outstanding mortgage
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.
The periodic charge, expressed as a percentage, for use of credit.
The number of percentage points the lender adds to the index rate to determine the annual percentage rate.
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.
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.
An interest that a lender takes in the borrower's property to ensure repayment of a debt.
A fee charged each time you draw on your credit line.
An interest rate that changes periodically in relation to an index. Payments may increase or decrease
Where to Go for Help
The following federal agencies are responsible for enforcing the
federal Truth in Lending Act, the law that governs disclosure of
terms for home equity lines of credit.
Questions concerning compliance with the act by a particular
financial institution should be directed to the institution's
State Banks that Are Members of the Federal Reserve
Division of Consumer and Community Affairs
Mail Stop 801
Federal Reserve Board
Washington DC 20551
Office of the Comptroller of the Currency
Customer Assistance Unit
1301 McKinney St.
Houston, TX 77010
Federal Credit Unions
National Credit Union Administration
Office of Public and Congressional Affairs
1775 Duke St.
Alexandria, VA 22314
Federally Insured Non-Member State-Chartered Banks and
Federal Deposit Insurance Corporation
Office of Compliance and Consumer Affairs
550 17th Street, NW
Room PA-1730, 7th Floor
Washington, DC 20429
(202) 942-3100 or
Federally Insured Savings and Loan Institutions and
Federally Chartered Savings Banks
Office of Thrift Supervision
1700 G Street, NW, 6thFloor
Washington, DC 20552
(202) 906-6237 or
Mortgage Companies and Other Lenders
Federal Trade Commission
Consumer Response Center
600 Pennsylvania Avenue, NW
Washington, DC 20580
(202) 326-3758 or
Home Equity Plan Checklist
Ask your lender to help fill out this checklist.
Basic Features Plan A Plan B
Fixed annual percentage rate % %
Variable annual percentage rate % %
* Index used and current value % %
* Amount of margin
* Frequency of rate adjustments
* Amount/length of discount (if any)
* Interest rate cap and floor
Length of plan
Up-front charges, including points
Repayment Terms Plan A Plan B
During the draw period
Interest and principal payments
Fully amortizing payments
When the draw period ends
Refinancing of balance by lender?