consumer lending home EQUITY DISCLOSURE

CONSUMER LENDING HOME EQUITY DISCLOSURE

Effective May 14, 2019

 

HOW TO USE THIS DISCLOSURE

 

Part I - Home Equity Line Disclosure(s)
Part II - What You Should Know About Home Equity Lines of Credit
Part III - State Specific Disclosures

 

 

Part I – Home Equity Line Disclosure(s)

 

IMPORTANT TERMS FOR YOUR HOME EQUITY LINE OF CREDIT

This disclosure contains important information about our Home Equity Lines of Credit ("Lines of Credit" or "Accounts") or Home Equity Loan (closed end non-revolving credit). "We", "us", "our", or "Bank" mean or refer to TD Bank, N.A. "You", or "your" mean or refer to the Applicant(s). Please read these disclosures carefully and retain for your records.

 

This disclosure contains important information about our Home Equity Lines of Credit ("Lines of Credit" or "Accounts"). You should read it carefully and keep a copy for your records.

 

1. Availability of terms. All the terms described below are subject to change. If these terms change, other than the Annual Percentage Rate (APR) and you decide, as a result, not to enter into an agreement with us, you are entitled to a refund of any fees you paid to us in connection with your application.

 

A.) 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.

B.) Possible Actions by Us. We may terminate the Account, require you to pay us the entire outstanding balance in one payment, and charge you certain fees if:


  • You engage in fraud or material misrepresentation in connection with the application or Account.
  • You do not meet the repayment terms of the Account.
  • Your action or inaction adversely affects the collateral or our rights in the collateral for the Account. 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, foreclosure by the holder of another lien, or the use of Account proceeds or the dwelling for illegal purposes which subjects the property to seizure.

  • C.) Suspension or Reduction. In addition to any other rights we may have, we may suspend (freeze) additional extensions of credit or reduce your credit limit during any period in which any of the following are in effect:


  • Upon your written request or that of any joint borrower.
  • The value of the dwelling securing the Account declines significantly below its appraised value for purposes of the Account.
  • We reasonably believe you will not be able to meet the repayment requirements of the Account due to a material change in your financial circumstances.
  • You are in default of a material obligation in the Account Agreement. We consider all your obligations to be material. Categories of material obligations include, but are not limited to, the events described in Section 1. B. above, obligations to pay fees and charges, obligations and limitations on the receipt of credit advances, obligations concerning maintenance or use of the dwelling or proceeds, obligations to notify us and to provide documents or information to us (such as updated financial information), and obligations to comply with applicable laws (such as zoning restrictions).
  • Government action 1) prevents us from imposing the Annual Percentage Rate provided for or 2) impairs our security interest such that the value of the interest is less than 120 percent of the credit limit.
  • We have been notified by our federal regulators that continued advances may constitute an unsafe and unsound business practice.
  • The maximum Annual Percentage Rate under the Account is reached.

  • We may charge your Account for appraisal and credit report fees we incur in investigating whether any condition permitting us to suspend (freeze) additional extensions of credit or reduce your credit limit continues to exist.

    D.) Change In Terms. We may make changes to the terms of the Account if (i) you agree to the change in writing at that time, (ii) the change will unequivocally benefit you throughout the remainder of the Account, or (iii) the change is insignificant (such as changes relating to our data processing system)

    2. Description of Fees. The information provided below reflects estimates of the charges, which you are likely to incur at the settlement of your Line of Credit. The fees listed are estimates – the actual charges may be more or less. Your transaction may not involve a fee for every item listed. Ranges shown are based on lines up to or equal to $1,000,000.

    Description of Fees

    Fee Range

    Origination Fee1

    $99

    Property Evaluation/Appraisal Fee

    $0 - $1,500

    Credit Report Fee

    $.50 - $15.00

    Flood Determination Fee

    $5- $25

    Hazard Insurance2

    $100 - $2,900

    Closing Services Fee4

    $750 - $1350

    Title Abstract or Search

    $48- $350

    Title Examination Fee3

    $175- $400

    Title Insurance3

    $2,000 - $5,000

    Recording Fee

    $21 - $400

    Mortgage Recording Tax - (NY Property)5 Borrower

    $.50 per $100 borrowed - $2.55per $100 borrowed

    Mortgage Recording Tax - (NY Property)5 Lender

    $25 - $2,500

    Mortgage Recording Tax - (MD Property)6 Lender

    $2.50 per $500 borrowed - $6.00 per $500 borrowed

    Mortgage Recording Tax - (VA Property)7 Lender

    $.333 per $100 borrowed

    Documentary Stamp Tax8 - (FL Property) Lender

    $.35 per $100 borrowed

    Intangible Tax9 - (FL Property) Lender

    $.002 per $1.00 borrowed

    Trust Review Fee (for properties held in Trust)

    $25- $200

     

    Attorney Fee - (NC, SC Property)1

    $0 - $450

     

    1The Origination Fee and Attorney Fee are Finance charges.

    2Hazard Insurance Premiums stated above reflect a loan or line of credit amount ranging from $100,000 to $1,000,000. The Borrower's insurance provider will determine the Borrower's actual cost. Flood insurance may be required.

    3Title Examination is required for loan or line of credit amounts greater than $500,000. Title Insurance may be required depending on the loan or line amount. Costs will be paid by Borrower(s).

    4This fee is applicable only on loans or lines secured by a Co-Op

    5Depending on your locality you will be required to pay a portion of the New York Mortgage Recording Tax. For example, based on a $100,000 loan or line of credit with a tax rate of $2.05 per $100, the Mortgage Recording Tax (NY property) would be $2,050.00. You would be responsible for $1,537.50. The lender portion is equal to 0.25% of the loan or line of credit amount. In this example, that would be $512.50.

    6The amount of the Maryland Recording Tax varies depending on the location of the property. For example, a $100,000 loan or line of credit with a tax rate of $3.84 per $500, the total Maryland Recording Tax would be $768.00.

    7For example, based on a $100,000 loan, the total Virginia Mortgage Recording Tax would be $333.00.

    8For example, based on a $100,000 loan, the total Florida Documentary Stamp Tax would be $350.00.

    9For example, based on a $100,000 loan, the total Florida Intangible Tax would be $200.00.

     

    3. Annual Fee. You may be charged an "Annual Fee" of $50 in order to maintain your Account. You agree to pay the Annual Fee, and agree that this fee will be charged to your Account after the first anniversary date of your Account opening and each anniversary thereafter during the "Draw Period". If the fee cannot be charged at the scheduled time for any reason, it may be charged within 5 subsequent billing cycles. An annual fee is not charged during the Repayment Period. The terms "Draw Period" and "Repayment Period" are defined in section 6 below. For additional information on Annual Fees, refer to Product Chart in section 10 B below.

     

    4. Early Termination Fee. You may be charged an "Early Termination Fee" of the lesser of $450 or 2% of the amount prepaid if you pay off and close your Home Equity Line of Credit Account within 24 months of the date you open your Account. The amount prepaid is the principal balance at the time you pay off your loan.

     

    5. Property Insurance. You must carry hazard insurance on the property that secures the Account. While you are required to have hazard insurance on the property, you are not required to obtain a policy that is in excess of the replacement cost of the improvements on the property. In addition, you must also carry flood insurance (if it is determined that your property is in a Special Flood Hazard Area) in the amount of the lesser of: (i) your total outstanding liens against the secured property, (ii) the replacement value of the building, or (iii) the maximum available coverage under the National Flood Insurance Program.

    Co-Ops. If your home is a cooperative unit, a "master policy" provided by your cooperative board covering your unit may be acceptable. In some cases, the building association's insurance policy also covers the standard fixtures in each unit. The unit owner might only be responsible for personal property inside the unit and for any additions or alterations made to the original structure, such as new carpeting. In other situations, the building policy covers only the bare walls, leaving unit owners responsible for insuring anything inside a unit such as cabinets, carpeting, and bathroom fixtures. You may be required to obtain additional coverage if the master policy provided by your cooperative board is not adequate.

    Notice: Check with your legal advisor and with other mortgage lien holders as to whether any prior liens contain acceleration clauses which would be activated by a junior encumbrance.

     

    6. Payment Requirements.

    A.) Draw Period. During the time period within which you may advance funds (the "Draw Period"), you may obtain advances up to the maximum credit extended to you (your "Credit Limit") until the Draw Period ends. The Draw Period is for ten (10) years. Each month during the Draw Period, your payment will be equal to the current finance charge plus amounts over your Credit Limit plus any "Fixed Rate Option" payments (as defined in section 7 below) plus past due amounts for the Line of Credit and Fixed Rate Option, plus any late fees or other charges (collectively the "Total Amount Due"). You must pay the Total Amount Due no later than the date shown on your periodic statement as the next "Payment Due Date." All payments will be applied first to interest and then to other amounts owed and finally to principal. You understand that paying the Total Amount Due will not reduce the principal that is outstanding on your Line of Credit. The Line of Credit principal balance is all of the outstanding balance that is not part of a "Fixed Rate Option". During the Draw Period, you have the right to pay off your Account in full or in part at any time before it is due without penalty except for the Early Termination Fee as noted in section 4 above. See section 7 below for more detail on the "Fixed Rate Option" feature.

     

    B.) Overdraft Coverage. If your Home Equity Line of Credit includes overdraft coverage, you may obtain advances by overdrawing your checking account that is linked to this Account. If you or another account holder of the checking account write a check or otherwise withdraw funds from the checking account in an amount that is larger than the available balance of your checking account, there will be an advance against this Account to cover the amount of the overdraft. (Please see the Bank's Funds Availability Policy in the Personal Deposit Account Agreement for more information about when deposited funds become available.) There will also be an advance against this Account for any fees or charges listed on the Deposit Account Fee Schedule if the available balance in your checking account will not cover the fees or charges. The advance from this Account will be in the amount of the overdraft including any fees or charges not covered by the available balance in your checking account. If an advance would cause you to exceed your Credit Limit, then only the remaining amount available will be advanced and there will be an overdraft on your checking account. Any applicable overdraft fees, as disclosed in the Deposit Account Fee Schedule, will be assessed. If your checking account that is linked to your Home Equity Line of Credit is closed for any reason, this overdraft coverage will immediately terminate. Otherwise, overdraft coverage will end when the Draw Period ends.

    If your account includes overdraft coverage, you may not advance funds from this Account to pay the Bank for sums due under your Home Equity Line of Credit Agreement or to pay other amounts owed to the Bank or its affiliates.

     

    C.) Repayment Period. After the Draw Period ends, you will no longer be able to obtain advances and you must repay the outstanding balance. This is called the "Repayment Period". You must repay all amounts you owe under the Account no later than twenty (20) years from the start of the Repayment Period. During the Repayment Period, each month your Total Amount Due will be equal to the greater of $50.00 or the monthly amount sufficient to repay the outstanding principal and interest accrued in full no later than twenty (20) years from the start of the Repayment Period based upon the periodic rate in effect for that billing cycle. Changes in your monthly payment will reflect the changes in the unpaid principal and interest of your Account, any Fixed Rate Option payment under Section 7, any amounts over your Credit Limit, any other fees or charges, any amount past due, and any APR changes in accordance with Section 6 of the Home Equity Line of Credit Agreement. During the Repayment Period, you have the right to pay off your Account in full or in part at any time before it is due without penalty.

     

    D.) Minimum Payment Examples. If you took a single $10,000 advance under your Account, and the ANNUAL PERCENTAGE RATE was 5.09% and you had a Draw Period of 10 years and a Repayment Period of 20 years, then if you made only the minimum monthly payments, it would take 30 years to pay off the advance.

    During the Draw Period, you would make 120 monthly payments of $41.83. During the Repayment Period, you would make 240 monthly payments of $66.11. The minimum payment example is based on a recent Annual Percentage Rate.

     

    7. Fixed Rate Option. So long as you are not in default or your Account is not terminated, you have the option of fixing the interest rate on all or part of the outstanding principal balance at any time during the Draw Period or Repayment Period ("Fixed Rate Option"). We will determine the amount of the monthly payment that would be sufficient to repay the outstanding principal and interest that you are expected to owe at the end of the Fixed Rate Option term you select in substantially equal payments. The maximum term of any Fixed Rate Option cannot continue beyond the Repayment Period. The minimum amount upon which you may fix the rate is $5,000. You may have up to three (3) Fixed Rate Options outstanding at any one time. If you choose to fix the rate, the rate will be equal to the rate on a Home Equity Loan offered by us with a comparable term that is in effect at the time you exercise the option. Current rates are available on our website. Your Fixed Rate Option payments will be a fixed dollar amount that will be established at the time you request to fix the rate. Your Fixed Rate Option payments will be billed on the same statement as your other payments and all payments will be combined and have the same due date. You understand that as you pay down the portion of your outstanding balance upon which you fixed the interest rate, the funds will become available again for advances during the Draw Period.

     

    8. Transaction Requirements. There is no minimum advance requirement to open an Account. There is no minimum advance requirement imposed during the Draw Period. Advances should not cause outstanding balances to exceed your Credit Limit.

     

    9. Tax Deductibility. You should consult a tax advisor regarding the deductibility of interest and charges for your Account.

     

    10. Variable Rate Feature. Your Account has a variable rate feature and the Annual Percentage Rate (corresponding to the daily periodic rate) and the monthly payment can change. The Annual Percentage Rate includes only interest.

     

    A.) The Index.

    The Annual Percentage Rate (APR) is based on the value of an index. The index applicable to your Account is the "Prime Rate" published in the Money Rates section of The Wall Street Journal on, or in effect on the first day of each billing cycle for your Account. When a range of rates has been published, the higher of the rates will be used. Any change in your APR will take effect on the first day of the billing cycle. If this index is no longer available, we will choose a new index. The new index will have an historical movement similar to the original index, and the new index when added to your 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.

     

    B.) How We Determine Your Margin.

    The margin that will be applied during the Draw Period and Repayment Period shall be determined in accordance with the Product chart below. The margin will be added to or subtracted from the index to determine the Annual Percentage Rate applicable during the Draw Period and Repayment Period of your Account.

    Your margin may be reduced if you have a Qualified Account relationship. Your initial margin may include a discount if you have a Qualified Account when you execute your Home Equity Line of Credit. This relationship must be maintained without interruption for the term of your line in order to qualify for the reduced margin.

    Your margin may be reduced if you are a TD Bank Employee.

     

    Product Chart

     

    Primary Residence and Second Homes1,2,4,7

    Investment Properties6

    Margin

    Prime + applicable Margin5

    Prime + applicable Margin5

    Prime + applicable Margin5

    Prime + applicable Margin5

    Prime + applicable Margin5

    Line Amount

    (Min / Max)

    $25,000 - No Maximum

    $50,000 - 99,999

    $100,000 - 199,999

    $200,000 - No Maximum

    $25,000 - $500,000

    Maximum Combined Loan to Value (CLTV)1,2,4,7

    Primary Residence4

    80.0% </= $1,500,000

    75.0%: $1,500,001 - $2,000,000

    70.0%: $2,000,001 - $3,000,000

    60.0%: $3,000,001 - $6,000,000

    50.0% > $6,000,000

    Primary Residence4

    80.0% </= $1,500,000

    75.0%: $1,500,001 - $2,000,000

    70.0%: $2,000,001 - $3,000,000

    60.0%: $3,000,001 - $6,000,000

    50.0% > $6,000,000

    Primary Residence4

    80.0% </= $1,500,000

    75.0%: $1,500,001 - $2,000,000

    70.0%: $2,000,001 - $3,000,000

    60.0%: $3,000,001 - $6,000,000

    50.0% > $6,000,000

    PrimaryResidence4

    80.0% </= $1,500,000

    75.0%: $1,500,001 - $2,000,000

    70.0%: $2,000,001 - $3,000,000

    60.0%: $3,000,001 - $6,000,000

    50.0% > $6,000,000

    75.0% </= $500,000

    Second Homes

    75.0% </= $1,500,000

    Second Homes

    75.0% </= $1,500,000

    Second Homes

    75.0% </= $1,500,000

    Second Homes

    75.0% </= $1,500,000

    Annual Fee3

    No

    Yes

    Yes

    Yes

    Yes

     

    Important Notes:

    1Condos and Co-ops have a maximum CLTV of 80% unless further restricted by property type.

    2Maximum CLTV is based on credit worthiness, property type, occupancy, lien position and loan amount. Maximum CLTV may be reduced by 5% in markets reflecting declining property values. For a property value greater than $2,500,000: additional terms and conditions may apply.

    3For a complete description of fees, please see section 2 above.

    4 Margins will be higher for combined loan-to-value (CLTV) ratios higher than 80%. 0.50% will be added to the Margin for line amounts with a maximum CLTV between 80.1% and 89.9%.

    5To obtain today's current APR and Margin, please call 800-822-6761 or contact a representative at your nearest store

    6Investment properties are ineligible for EquityAccess PLUS product type

    7Lien position may affect the maximum loan amount.

     

    C.) Annual Percentage Rate.

    To determine the Annual Percentage Rate ("APR") that will apply to your Account, we add or subtract the margin to the value of the index. Ask us for the current indices, margins and APRs. Your initial APR will be based on the Index in effect at the closing date of your Home Equity Line of Credit. After you open an Account, rate information will be provided on periodic statements that we send you.

     

    11. Rate Changes. The APR on your Account can change on the first day of each billing cycle. The maximum APR that can apply is the maximum rate of 18%. Apart from this, there are no limits on the amount by which the rate can change during any one-year period. Your interest rate may reach the limit when the index plus the margin are equal to or exceed the maximum APR of 18%.

    The APR on your Account may also change if you terminate the Qualified Account relationship. If your APR is discounted due to a Qualified Account relationship and you close the Account at any time during the term of your line, the APR may increase. If the APR is increased, the margin will increase by the related discount. We will provide you with advance notice of the APR as a result of this increase as required by applicable law. The APR may increase only once for termination of a relationship discount. The APR increase will become effective on the first day of the billing cycle after the notification period.

    The APR on your Account may also change if your automatic payment deduction enrollment is terminated. If your APR is discounted due to an automatic payment deduction and you either close the account or your automatic payment deduction is cancelled at any time during the term of your line by you or the Bank, the APR may increase. The interest rate may also be increased if you fail to maintain sufficient balances in your Bank account to cover the monthly payment. If insufficient funds occur three times in a 12 month period, automatic payments may be cancelled and the interest rate may increase. If the APR is increased, the margin will increase by the related discount. We will provide you with advance notice of the APR as a result of this increase as required by applicable law. The APR may increase only once for the cancellation of your automatic payment deductions. The APR increase will become effective on the first day of the billing cycle after the notification period.

     

    12. Maximum Rate and Payment Examples. If you had an outstanding balance of $10,000 during the Draw Period (ten [10] years), the minimum monthly payment at the maximum APR of 18.00% would be $147.94. The maximum APR could be reached during 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 APR of 18.00% would be $152.43. The maximum APR could be reached during the first month of the Repayment Period.

     

    HISTORICAL EXAMPLE

    The following table shows how the Annual Percentage Rate and 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 the first week ending in January. While only one payment amount per year is shown, payments would have varied during the 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.

     

    Year

    Index

     

    Margin*

    Annual Percentage Rate

    Minimum Monthly Payments

     

    DRAW PERIOD

    2005

    5.25%

     

    0.00%

    5.25%

    $43.15

     

    2006

    7.25%

     

    0.00%

    7.25%

    $59.59

     

    2007

    8.25%

     

    0.00%

    8.25%

    $67.81

     

    2008

    7.25%

     

    0.00%

    7.25%

    $59.59

     

    2009

    3.25%

     

    0.00%

    3.25%

    $26.71

     

    2010

    3.25%

     

    1.00%

    4.25%

    $34.93

     

    2011

    3.25%

     

    0.50%

    3.75%

    $30.82

     

    2012

    3.25%

     

    -0.50%

    2.75%

    $22.60

     

    2013

    3.25%

     

    -0.50%

    2.75%

    $22.60

     

    2014

    3.25%

     

    0.50%

    3.75%

    $30.82

     

    REPAYMENT PERIOD

    2015

    3.25%

     

    0.50%

    3.75%

    $59.02

     

    2016

    3.50%

     

    -0.25%

    3.25%

    $56.60

     

    2017

    3.75%

     

    -0.25%

    3.50%

    $57.75

     

    2018

    4.50%

     

    -0.76%

    3.74%

    $58.80

     

    2019

    5.50%

     

    -0.41%

    5.09%

    $64.63

     

    *This is a margin we have used recently

     

     

    IMPORTANT FACTS ABOUT INTEREST-ONLY MORTGAGES

    Whether you are buying a house or refinancing your mortgage, this information can help you decide if an interest-only mortgage 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 Mortgages allow you to pay only the interest on the money you borrowed for the first few years of the mortgage (the "interest-only" period or "Draw Period").

     

    If you pay only the amount due, then at the end of the interest-only period:


  • You will still owe the original amount you borrowed
  • Your monthly payment will increase because you must pay back the principal as well as interest.
  • Your monthly payment could increase even more if you have an adjustable rate mortgage ("ARM") and interest rates increase.
  •  

    Additional Information

     

    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.

     

    Prepayment Fees – 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 fee, how it works, and how much it could be. You can find information about our prepayment fees in section 4 above and in Part III below, under "Prepayment Fee".

     

    Comparison Table. This table compares a fixed rate closed-end loan to a variable rate open-end line of credit with an interest-only payment period of 10 years.

    The borrower who makes the larger, fully-amortizing payment of principal and interest gradually reduces the balance, and has repaid about $15,223.87 of the loan by the end of the 10th year. The borrower who pays interest only does not begin to reduce the balance of the line of credit until year 11. The payment amount beginning year 11 will vary based on outstanding principal balance and interest rate. It is larger than the payment on the loan that was fully-amortizing from the beginning because it must pay off the loan over 20 years rather than 30.

    (For illustrative and educational purposes only – does not represent actual terms of loans available from any particular lender).

     

    Required payments on a $100,000 30 year term loan or line of credit at 6.50%, with and without a 10 year interest-only payment period.

     

    Closed-End Fixed Rate Loan – 6.50%

    Open-End Variable Rate Line of Credit – 6.50%

    Open-End Variable Rate Line of Credit – 18.00%

    Required Monthly Payments

    Years 1-10

    $632.07 (principal and interest)

    $534.23 (interest only)

    $1,479.41 (interest only)

    Beginning Year 11

    $632.07 (principal and interest)

    $740.33 (principal and interest)

    $1,524.32 (principal and interest)

    Effect on Loan Balance and Home Equity

    After 5 Years, How Much Will You Owe?

    $93,610.98

    $100,000.00

    $100,000.00

    After 10 Years, How Much Will You Owe?

    $84,776.13

    $100,000.00

    $100,000.00

    After 15 Years, How Much Will You Owe?

    $72,559.14

    $85,467.70

    $95,708.31

    After 15 years, How Much Home Equity Has Your Loan Payments Built?

    $27,440.86

    $14,532.30

    $4,291.69

     

     

     

    Part II –What You Should Know About Home Equity Lines Of Credit

     

    This booklet was initially prepared by the Board of Governors of the Federal Reserve System. The Consumer Financial Protection Bureau (CFPB) has made technical updates to the booklet to reflect new mortgage rules under Title XIV of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). A larger update of this booklet is planned in the future to reflect other changes under the Dodd-Frank Act and to align with other CFPB resources and tools for consumers as part of the CFPB's broader mission to educate consumers. Consumers are encouraged to visit the CPFB's website at consumerfinance.gov/owning-a-home to access interactive tools and resources for mortgage shoppers, which are expected to be available beginning in 2014.

     

    Table of contents


    Table of contents


    1. Introduction

    • 1.1 Home equity plan checklist

    2. What is a home equity line of credit?

    • 2.1   What should you look for when shopping for a plan?
    • 2.2   Costs of establishing and maintaining a home equity line
    • 2.3   How will you repay your home equity plan?
    • 2.4   Line of credit vs. traditional second mortgage loans
    • 2.5   What if the lender freezes or reduces your line of credit?

    Appendix A:

    • Defined terms

    Appendix B:

    • More information

    Appendix C:

    • Contact information

    1. Introduction


    If you are in the market for credit, a home equity plan is one of several options that might be right for you. Before making a decision, however, 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 risks. And remember, failure to repay the amounts you've borrowed, plus interest, could mean the loss of your home.


    1.1 HOME EQUITY PLAN CHECKLIST

    Ask your lender to help you fill out this worksheet.

    Basic Features for Comparison

    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

    Draw period

     

     

    Repayment period

     

     

    Initial fees

    Appraisal fee

     

     

    Application fee

     

     

    Up-front charges, including points

     

     

    Closing costs

     

     

    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?

     

     


    2. 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 a home often is a consumer's most valuable asset, many homeowners use home equity credit lines only for major items, such as education, home improvements, or medical bills, and choose not to use them for day-to-day expenses.

    With a home equity line, you will be approved for a specific amount of credit. 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

    = $ 75,000

    Less balance owed on mortgage

    - $ 40,000

    Potential line of credit

    $ 35,000


    In determining your actual credit limit, the lender will also consider your ability to repay the loan (principal and interest) 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 other 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) or keep a minimum amount outstanding. Some plans may also require that you take an initial advance when the line is set up.


    2.1 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. Remember, though, that the APR for a home equity line is based on the interest rate alone and will not reflect closing costs and other fees and charges, so you'll need to compare these costs, as well as the APRs, among lenders.


    2.1.1 Variable Interest Rates


    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). In such cases, the interest rate you pay for the line of credit will change, mirroring changes 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. It is also important to note the amount of the margin.


    Lenders sometimes offer a temporarily discounted interest rate for home equity lines-an "introductory" rate that is unusually low for a short period, such as six 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 the index drops.


    Some lenders allow you to convert from a variable interest rate to a fixed rate during the life of the plan, or let you convert all or a portion of your line to a fixed-term installment loan.


    2.2 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,


    • 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); and
    • Closing costs, including fees for attorneys, title search, 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. And 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.


    2.3 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 a minimum monthly payment that includes a portion of the principal (the amount you borrow) plus accrued interest. But, unlike with typical installment loan agreements, the portion of your payment 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 only 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 payment plan ends.


    Regardless of the minimum required payment on your home equity line, you may choose to pay more, and many lenders offer a choice of payment options. However, some lenders may require you to pay special fees or penalties if you choose to pay more, so check with your lender. 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 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.


    2.4 Line 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. This type of loan provides you with a fixed amount of money, repayable over a fixed period. In most cases, the payment schedule calls for equal payments that 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.

    2.4.1 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. Lenders are also required to provide you with a list of homeownership counseling organizations in your area.


    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 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 lender in writing within the three-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.


    The Home Ownership and Equity Protection Act of 1994 (HOEPA) addresses certain unfair practices and establishes requirements for certain loans with high rates and fees, including certain additional disclosures. HOEPA now covers some HELOCs. You can find out more information by contacting the CFPB at the website address and phone number listed in the Contact information appendix, below.


    2.5 What if the lender freezes or reduces your line of credit?


    Plans generally permit lenders to freeze or reduce a credit line if the value of the home "declines significantly" or, when the lender "reasonably believes" that you will be unable to make your payments due to a "material change" in your financial circumstances. If this happens, you may want to:

    • Talk with your lender. Find out what caused the lender to freeze or reduce your credit line and what, if anything, you can do to restore it. You may be able to provide additional information to restore your line of credit, such as documentation showing that your house has retained its value or that there has not been a "material change" in your financial circumstances. You may want to get copies of your credit reports (go to the CFPB's website at consumerfinance.gov/askcfpb/5/can-i-review-my-credit-report.html for information about how to get free copies of your credit reports) to make sure all the information in them is correct. If your lender suggests getting a new appraisal, be sure you discuss appraisal firms in advance so that you know they will accept the new appraisal as valid.
    • Shop around for another line of credit. If your lender does not want to restore your line of credit, shop around to see what other lenders have to offer. If another lender is willing to offer you a line of credit, you may be able to pay off your original line of credit and take out another one. Keep in mind, however, that you may need to pay some of the same application fees you paid for your original line of credit.

     

    Appendix A:


    Defined Terms


    This glossary provides general definitions for terms commonly used in the real estate market. They may have different legal meanings depending on the context.


    DEFINED TERM

    ANNUAL MEMBERSHIP OR MAINTENANCE FEE

    An annual charge for access to a financial product such as a line of credit, credit card, or account. The fee is charged regardless of whether or not the product is used.

    ANNUAL PERCENTAGE RATE (APR)

    The cost of credit, expressed as a yearly rate. For closed-end credit, such as car loans or mortgages, the APR includes the interest rate, points, broker fees, and other credit charges that the borrower is required to pay. An APR, or an equivalent rate, is not used in leasing agreements.

    APPLICATION FEE

    Fees charged when you apply for a loan or other credit. These fees may include charges for property appraisal and a credit report.

    BALLOON PAYMENT

    A large extra payment that may be charged at the end of a mortgage loan or lease.

    CAP (INTEREST RATE)

    A limit on the amount that your interest rate can increase. Two types of interest-rate caps exist. Periodic adjustment caps limit the interest-rate increase from one adjustment period to the next. Lifetime caps limit the interest-rate increase over the life of the loan. By law, all adjustable-rate mortgages have an overall cap.

    CLOSING OR SETTLEMENT COSTS

    Fees paid when you close (or settle) on a loan. These fees may include application fees; title examination, abstract of title, title insurance, and property survey fees; fees for preparing deeds, mortgages, and settlement documents; attorneys' fees; recording fees; estimated costs of taxes and insurance; and notary, appraisal, and credit report fees. Under the Real Estate Settlement Procedures Act, the borrower receives a good faith estimate of closing costs within three days of application. The good faith estimate lists each expected cost as an amount or a range.

    CREDIT LIMIT

    The maximum amount that may be borrowed on a credit card or under a home equity line of credit plan.

    EQUITY

    The difference between the fair market value of the home and the outstanding balance on your mortgage plus any outstanding home equity loans.

    INDEX

    The economic indicator used to calculate interest-rate adjustments for adjustable-rate mortgages or other adjustable-rate loans. The index rate can increase or decrease at any time. See also Selected index rates for ARMs over an 11-year period (consumerfinance.gov/f/201204_CFPB_ARMs-brochure.pdf) for examples of common indexes that have changed in the past.

    INTEREST RATE

    The percentage rate used to determine the cost of borrowing money, stated usually as a percentage of the principal loan amount and as an annual rate.

    MARGIN

    The number of percentage points the lender adds to the index rate to calculate the adjustable-rate-mortgage interest rate at each adjustment.

    MINIMUM PAYMENT

    The lowest amount that you must pay (usually monthly) to keep your account in good standing. Under some plans, the minimum payment may cover interest only; under others, it may include both principal and interest.

    POINTS (ALSO CALLED DISCOUNT POINTS)

    One point is equal to 1 percent of the principal amount of a mortgage loan. For example, if a mortgage is $200,000, one point equals $2,000. Lenders frequently charge points in both fixed-rate and adjustable-rate mortgages to cover loan origination costs or to provide additional compensation to the lender or broker. These points usually are paid at closing and may be paid by the borrower or the home seller, or may be split between them. In some cases, the money needed to pay points can be borrowed (incorporated in the loan amount), but doing so will increase the loan amount and the total costs. Discount points (also called discount fees) are points that you voluntarily choose to pay in return for a lower interest rate.

    SECURITY INTEREST

    If stated in your credit agreement, a creditor, lessor, or assignee's legal right to your property (such as your home, stocks, or bonds) that secures payment of your obligation under the credit agreement. The property that secures payment of your obligation is referred to as "collateral."

    TRANSACTION FEE

    Fee charged each time a withdrawal or other specified transaction is made on a line of credit, such as a balance transfer fee or a cash advance fee.

    VARIABLE RATE

    An interest rate that changes periodically in relation to an index, such as the prime rate. Payments may increase or decrease accordingly.

     

    Appendix B:


    More information


    For more information about mortgages, including home equity lines of credit, visit consumerfinance.gov/mortgage. For answers to questions about mortgages and other financial topics, visit consumerfinance.gov/askcfpb. You may also visit the CFPB's website at consumerfinance.gov/owning-a-home to access interactive tools and resources for mortgage shoppers, which are expected to be available beginning in 2014.


    Housing counselors can be very helpful, especially for first-time home buyers or if you're having trouble paying your mortgage. The U.S. Department of Housing and Urban Development (HUD) supports housing counseling agencies throughout the country that can provide free or low-cost advice. You can search for HUD-approved housing counseling agencies in your area on the CFPB's web site at consumerfinance.gov/find-a-housing-counselor or by calling HUD's interactive toll-free number at 800-569-4287.


    The company that collects your mortgage payments is your loan servicer. This may not be the same company as your lender. If you have concerns about how your loan is being serviced or another aspect of your mortgage, you may wish to submit a complaint to the CFPB at consumerfinance.gov/complaint or by calling (855) 411-CFPB (2372).


    When you submit a complaint to the CFPB, the CFPB will forward your complaint to the company and work to get a response. Companies have 15 days to respond to you and the CFPB. You can review the company's response and give feedback to the CFPB.

     

    APPENDIX C:


    Contact information


    For additional information or to submit a complaint, you can contact the CFPB or one of the other federal agencies listed below, depending on the type of institution. If you are not sure which agency to contact, you can submit a complaint to the CFPB and if the CFPB determines that another agency would be better able to assist you, the CFPB will refer your com plaint to that agency and let you know.

    Regulatory agency

    Regulated entities

    Contact information

    Consumer Financial Protection Bureau(CFPB)
    P.O. Box 4503
    Iowa City, IA 52244

    Insured depository institutions and credit unions with assets greater than $10 billion (and their affiliates), and non-bank providers of consumer financial products and services, including mortgages, credit cards, debt collection, consumer reports, prepaid cards, private education loans, and payday lending

    (855) 411-CFPB (2372)
    consumerfinance.gov
    consumerfinance.gov/complaint

    Board of Governors of the Federal Reserve System (FRB)
    Consumer Help
    P.O. Box 1200
    Minneapolis, MN 55480

    Federally insured state-chartered bank members of the Federal Reserve System

    (888) 851-1920
    federalreserveconsumerhelp.gov

    Office of the Comptroller of the Currency (OCC)
    Customer Assistance Group
    1301 McKinney Street
    Suite 3450
    Houston, TX 77010

    National banks and federally chartered savings banks/associations

    (800) 613-6743
    occ.treas.gov
    helpwithmybank.gov

    Federal Deposit Insurance Corporation (FDIC)
    Consumer Response Center
    1100 Walnut Street,
    Box #11
    Kansas City, MO 64106

    Federally insured state-chartered banks that are not members of the Federal Reserve System

    (877) ASK-FDIC or
    (877) 275-3342
    fdic.gov
    fdic.gov/consumers

    Federal Housing Finance Agency (FHFA)
    Consumer Communications Constitution Center
    400 7th Street,
    S.W. Washington, DC 20024

    Fannie Mae, Freddie Mac, and the Federal Home Loan Banks

    Consumer Helpline
    (202) 649-3811
    fhfa.gov
    fhfa.gov/Default.aspx?Page=369
    ConsumerHelp@fhfa.gov

    National Credit Union Administration (NCUA)
    Consumer Assistance
    1775 Duke Street
    Alexandria, VA 22314

    Federally charted credit unions

    (800) 755-1030
    ncua.gov
    mycreditunion.gov

    Federal Trade Commission(FTC)
    Consumer Response Center
    600 Pennsylvania Ave,
    N.W. Washington, DC 20580

    Finance companies, retail stores, auto dealers, mortgage companies and other lenders, and credit bureaus

    (877) FTC-HELP or
    (877) 382-4357
    ftc.gov
    ftc.gov/bcp

    Securities and Exchange Commission (SEC)
    Complaint Center
    100 F Street, N.E.
    Washington, DC 20549

    Brokerage firms, mutual fund companies, and investment advisers

    (202) 551-6551 sec.gov
    sec.gov/complaint/select.shtml

    Farm Credit Administration Office of Congressional and Public Affairs
    1501 Farm Credit Drive
    McLean, VA 22102

    Agricultural lenders

    (703) 883-4056
    fca.gov

    Small Business Administration (SBA) Consumer Affairs
    409 3rd Street, S.W.
    Washington, DC 20416

    Small business lenders

    (800) U-ASK-SBA or
    (800) 827-5722
    sba.gov

    Commodity Futures Trading Commission (CFTC)
    1155 21st Street, N.W.
    Washington, DC 20581

    Commodity brokers, commodity trading advisers, commodity pols, and introducing brokers

    (866) 366-2382
    cftc.gov/consumer-protection

    U.S. Department of Justice (DOJ)
    Civil Rights Division
    950 Pennsylvania Ave,
    N.W. Housing and Civil Enforcement Section
    Washington DC 20530

    Fair lending and housing issues

    (202) 514-4713
    TTY-(202) 305-1882
    FAX-(202) 514-1116
    To report an incident of housing discrimination:
    1-800-896-7743
    fairhousing@usdoj.gov

    Department of Housing and Urban Development (HUD)
    Office of Fair Housing/Equal Opportunity
    451 7th Street, S.W.
    Washington, DC 20410

    Fair lending and housing issues

    (800) 669-9777
    hud.gov/complaints

     

     

    Part III – State Specific Disclosures

     

    FL STATEMENT OF ANTI-COERCION

     

    This disclosure is provided to you pursuant to Fla/ Admin/Code Ann.R.69B-124.002, F.A.C., of the rules and regulations promulgated by the Chief Financial Officer relative to anti-coercion:

     

    The Insurance laws of this state provide that the lender may not require the borrower(s) to take insurance through any particular insurance agent or company to protect the mortgaged property.

     

    The borrower(s), subject to the rules adopted by the Chief Financial officer has/have the right to have the insurance placed with an insurance agent or company of his/her choice, provided the company meets the requirements of the lender. The lender has the right to designate reasonable financial requirements as to the company and the adequacy of the coverage.

     

    I/We have read the foregoing statement or the rules of the Chief Financial Officer relative thereto, and understand my/our rights and privileges and those of the lender relative to the placing of such insurance of the property referenced above.

     

    I have selected:

     

    whose address is:

     

     

    to write the hazard insurance covering property located at:

     

     

     

     

    Borrower ______________________________________________ Date _________________

     

     

    Borrower ______________________________________________ Date _________________

     

     

    Borrower ______________________________________________ Date _________________

     

     

    Borrower ______________________________________________ Date _________________

     

     

    Borrower ______________________________________________ Date _________________

     

     

    Borrower ______________________________________________ Date _________________

     

     



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