Home Equity Disclosure Booklet - People's United Financial

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Home EquityDisclosure BookletPeople’s United Bankpeoples.comEffective March 2021L0014 03.2021001

HOME EQUITY PLAN CHECKLISTAsk your lender to help fill out this checklist.Home Equity DisclosureTITLEPRODUCT*PAGESECTION I.When Your Home is on the LineHELOC2HELOC9SECTION II.Important Terms of our Home EquityLine of CreditSECTION III.Notice to Mortgage Loan ApplicantBasic features for comparisonPlan APlan BFixed annual percentage rate%%Variable annual percentage rate%% Index used and current value%% Amount of marginHELOC, HEL13 Frequency of rate adjustments Amount/length of discount (if any)SECTION IV.Customer Identification NoticeALL14SECTION V.Transfer of Servicing NoticeHEL14SECTION VI.SelectLock OptionHELOC15 Interest rate cap and floorLength of planDraw periodRepayment periodInitial fees*Product: HELOC Home Equity Line of CreditHEL Home Equity LoanALL Home Equity Line of Credit, Home EquityLoanAppraisal feeApplication feeUp-front charges, including pointsClosing costsAUTHORIZATION TO OBTAIN CREDIT REPORTBefore you make an application for credit, please notethat all applicants must authorize People’s United Bank,N.A. (“People’s United”) to obtain a credit report for eachapplicant. The information contained in the report willbe used as part of the underwriting process. If you areunwilling to allow People’s United to obtain a creditreport, we cannot start the application process.SECTION I: WHAT YOU SHOULD KNOW ABOUT HOMEEQUITY LINES OF CREDITIf you are in the market for credit, a home equity planis one of several options that might be right for you.Before making a decision, however, you should weighcarefully the costs of a home equity line against thebenefits. Shop for the credit terms that best meet yourborrowing needs without posing undue financial risks.And remember, failure to repay the amounts you’veborrowed, plus interest, could mean the loss of your home.2Repayment TermsDuring the draw periodInterest and principal paymentsInterest-only paymentsFully amortizing paymentsWhen the draw period endsBalloon payment?Renewal available?Refinancing of balance by lender?What is a home equity line of credit?A home equity line of credit is a form of revolving creditin which your home serves as collateral. Because thehome often is a consumer’s most valuable asset, manyhomeowners use home equity credit lines only for majoritems such as education, home improvements, or medicalbills and choose not to use them for day-to-day expenses.With a home equity line, you will be approved for aspecific amount of credit. Many lenders set the creditlimit on a home equity line by taking a percentage (say, 75percent) of the home’s appraised value and subtracting3

from that the balance owed on the existing mortgage.For example:Appraised value of your home 100,000Percentagex 75%Percentage of appraised value 75,000Less balance owed on mortgage– 40,000Potential line of credit 35,000In determining your actual credit limit, the lender willalso consider your ability to repay the loan (principal andinterest), by looking at your income, debts, and otherfinancial obligations as well as your credit history.Many home equity plans set a fixed period duringwhich you can borrow money, such as 10 years. At theend of this “draw period,” you may be allowed to renewthe credit line. If your plan does not allow renewals, youwill not be able to borrow additional money once theperiod has ended. Some plans may call for paymentin full of any outstanding balance at the end of theperiod. Others may allow repayment over a fixed period(the “repayment period”), for example, 10 years.Once approved for a home equity line of credit, youwill most likely be able to borrow up to your credit limitwhenever you want. Typically, you will use special checks todraw on your line. Under some plans, borrowers can use acredit card or other means to draw on the line. There may beother limitations on how you use the line. Some plans mayrequire you to borrow a minimum amount each time youdraw on the line (for example, 300) and to keep a minimumamount outstanding. Some plans may also require thatyou 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, lookfor the plan that best meets your particular needs. Readthe credit agreement carefully, and examine the termsand conditions of various plans, including the annualpercentage rate (APR) and the costs of establishing theplan. Remember though, that the APR for a home equityline is based on interest rate alone and will not reflect theclosing costs and other fees and charges, so you’ll need tocompare these costs, as well as the APRs, among lenders.Variable Interest ratesHome equity lines of credit typically involve variablerather than fixed interest rates. The variable rate must bebased on a publicly available index (such as the primerate published in some major daily newspapers or a U.S.Treasury bill rate). In such cases, the interest rate you payfor the line of credit will change, mirroring changes in thevalue of the index. Most lenders cite the interest rate youwill pay as the value of the index at a particular time plus4a “margin,” such as 2 percentage points. Because the costof borrowing is tied directly to the value of the index, it isimportant to find out which index is used, how often thevalue of the index changes, and how high it has risen in thepast. It is also important to note the amount of the margin.Lenders sometimes offer a temporarily discountedinterest rate for home equity lines — an “introductory “ ratethat 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 mayincrease over the life of the plan. Some variable-rate planslimit how much your payment may increase and how lowyour interest rate may fall if the index drops.Some lenders allow you to convert from a variableinterest rate to a fixed rate during the life of the plan, orlet you convert all or a portion of your line to a fixed-terminstallment loan.Costs of establishing and maintaining a home equity lineMany of the costs of setting up a home equity line of creditare similar to those you pay when you get a mortgage.For example: A fee for a property appraisal to estimate the value ofyour home. An application fee, which may not be refunded if you areturned down for credit. Up-front charges, such as one or more points (one pointequals 1 percent of the credit limit). Closing costs, including fees for attorneys, title search,and mortgage preparation and filing; property and titleinsurance; and taxes.In addition, you may be subject to certain fees during theplan period, such as annual membership or maintenancefees and a transaction fee every time you draw on the creditline.You could find yourself paying hundreds of dollars toestablish the plan. And if you were to draw only a smallamount against your credit line, those initial charges wouldsubstantially increase the cost of the funds borrowed. Onthe other hand, because the lender’s risk is lower than forother forms of credit, as your home serves as collateral,annual percentage rates for home equity lines are generallylower than rates for other types of credit. The interest yousave could offset the costs of establishing and maintainingthe line. Moreover, some lenders waive some or all of theclosing costs.How will you repay your home equity plan?Before entering into a plan, consider how you will payback the money you borrow. Some plans set a minimumpayment that includes a portion of the principal (theamount you borrow) plus accrued interest. But, unlike withtypical installment loan agreements the portion of your5

payment that goes toward principal may not be enoughto repay the principal by the end of the term. Other plansmay allow payment of only the interest during the life ofthe plan, which means that you pay nothing toward theprincipal. If you borrow 10,000, you will owe that amountwhen the payment plan ends.Regardless of the minimum required payment on yourhome equity line, you may choose to pay more, and manylenders offer a choice of payment options. Many consumerschoose to pay down the principal regularly as they do withother 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 lifeof the plan — whether you pay some, a little, or none ofthe principal amount of the loan — when the plan endsyou may have to pay the entire balance owed, all at once.You must be prepared to make this “balloon payment” byrefinancing it with the lender, by obtaining a loan fromanother lender, or by some other means. If you are unableto make the balloon payment, you could lose your home.If your plan has a variable interest rate, your monthlypayments may change. Assume, for example, that youborrow 10,000 under a plan that calls for interest-onlypayments. At a 10 percent interest rate, your monthlypayments would be 83. If the rate rises over time to 15percent, your monthly payments will increase to 125.Similarly, if you are making payments that cover interestplus some portion of the principal, your monthly paymentsmay increase, unless your agreement calls for keepingpayments the same throughout the plan period.If you sell your home, you will probably be required topay off your home equity line in full immediately. If you arelikely to sell your home in the near future, consider whetherit makes sense to pay the up-front costs of setting up a lineof credit. Also keep in mind that renting your home may beprohibited under the terms of your agreement.Lines of credit vs. traditional second mortgage loansIf you are thinking about a home equity line of credit, youmight also want to consider a traditional second mortgageloan. This type of loan provides you with a fixed amountof money repayable over a fixed period. In most cases thepayment schedule calls for equal payments that will pay offthe entire loan within the loan period. You might considera second mortgage instead of a home equity line if, forexample, you need a set amount for a specific purpose, suchas an addition to your home.In deciding which type of loan best suits your needs,consider the costs under the two alternatives. Look atboth the APR and other charges. Do not, however, simplycompare the APRs, because the APRs on the two types ofloans are figured differently: The APR for a traditional second mortgage loan takesinto account the interest rate charged plus points and6other finance charges. The APR for a home equity line of credit is based on theperiodic interest rate alone. It does not include points orother charges.Disclosures from LendersThe federal Truth in Lending Act requires lenders to disclosethe important terms and costs of their home equity plans,including the APR, miscellaneous charges, the paymentterms, and information about any variable-rate feature.And in general, neither the lender nor anyone else maycharge a fee until after you have received this information.You usually get these disclosures when you receive anapplication form, and you will get additional disclosuresbefore the plan is opened. If any term (other than a variablerate feature) changes before the plan is opened, the lendermust return all fees if you decide not to enter into the planbecause of the change. When you open a home equity line,the transaction puts your home at risk. If the home involvedis your principal dwelling, the Truth in Lending Act givesyou 3 days from the day the account was opened to cancelthe credit line. This right allows you to change your mind forany reason. You simply inform the lender in writing withinthe 3-day period. The lender must then cancel its securityinterest in your home and return all fees — including anyapplication and appraisal fees — paid to open the account.What if the lender freezes or reduces your line of credit?Plans generally permit lenders to freeze or reduce a creditline if the value of the home “declines significantly” or, whenthe lender “reasonably believes” that you will be unableto make your payments due to a “material change” in yourfinancial circumstances. If this happens, you may want to: Talk with your lender. Find out what caused the lenderto freeze or reduce your credit line and what, if anything,you can do to restore it. You may be able to provideadditional information to restore your line of credit, suchas documentation showing that your house has retainedits value or that there has not been a “material change” inyour financial circumstances. You may want to get copiesof your credit reports (go to the CFPB’s website at iew-mycredit-report.html for information about free copies) tomake sure all the information in them is correct. If yourlender suggests getting a new appraisal, be sure youdiscuss appraisal firms in advance so that you know theywill accept the new appraisal as valid. Shop around for another line of credit. If your lenderdoes not want to restore your line of credit, shop aroundto see what other lenders have to offer. If another lenderis willing to offer you a line of credit, you may be able topay off your original line of credit and take out anotherone. Keep in mind, however, that you may need to pay7

some of the same application fees you paid for youroriginal line of credit.GLOSSARYAnnual membership or maintenance fee: An annualcharge for access to a financial product such as a line ofcredit, credit card, or account. The fee is charged regardlessof whether or not the product is used.Annual percentage rate (APR): The cost of creditexpressed as a yearly rate. For closed end credit, suchas car loans or mortgages, the APR includes the interestrate, points, broker fees and other credit charges that theborrower is required to pay. An APR or equivalent rate is notused in leasing agreements.Application fee: Fees charged when you apply for a loanor other credit. These fees may include charges for propertyappraisal and a credit report.Balloon payment: A large extra payment that may becharged at the end of the mortgage loan or lease.Cap (interest rate): A limit on the amount that your interestrate can increase. Two types of interest-rate caps exist.Periodic adjustment caps limit the interest-rate increase fromone adjustment period to the next. Lifetime caps limit theinterest-rate increase over the life of the loan. By law, alladjustable-rate mortgages have an overall cap.Closing or settlement costs: Fees paid when you close(or settle) on a loan. These fees may include applicationfees; title examination, abstract of title, title insurance,and property survey fees; fees for preparing deeds,mortgages, and settlement documents; attorney’s fees;recording fees; estimated costs of taxes and insurance; andnotary, appraisal and credit report fees. Under the RealEstate Settlement Procedures Act, the borrower receivesa good faith estimate of closing costs within three days ofapplication. The good faith estimate lists each expectedcost as an amount or a range.Credit limit: The maximum amount that may be borrowedon a credit card or under an equity line of credit plan.Equity: The difference between the fair market value of thehome and the outstanding balance on your mortgage plusany outstanding home equity loans.Index: The economic indicator used to calculate interestrate adjustments for adjustable-rate mortgages or otheradjustable-rate loans. The index rate can increase ordecrease at any time.See also Selected Index Rates for ARMs over an 11-yearPeriod (www.federalreserve.gov/pubs/arms/arms english.htm) for examples of common indexes that have changedin the past.cost of borrowing money, stated usually as a percentage ofthe principal loan amount and as an annual rate.Margin: The number of percentage points the lender addsto the index rate to calculate the adjustable-rate-mortgageinterest 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 coverinterest only; under others, it may include both principaland interest.Points (also called discount points): One point is equalto 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-rateand adjustable-rate mortgages to cover loan originationcosts or to provide additional compensation to the lenderor broker. These points usually are paid at closing and maybe paid by the borrower or the home seller, or may be splitbetween them. In some cases, the money needed to paypoints can be borrowed (incorporated in the loan amount),but doing so will increase the loan amount and the totalcosts. Discount points (also called discount fees) are pointsthat you voluntarily choose to pay in return for a lowerinterest rate.Security interest: If stated in your credit agreement, acreditor, lessor or assignee’s legal right to your property(such as your home, stocks, or bonds) that secures paymentof your obligation under the credit agreement.Transaction fee: A Fee charged each time a withdrawal orother specified transaction is made on a line of credit, suchas a balance transfer fee or cash advance fee.Variable rate: An interest rate that changes periodically inrelation to an index, such as the prime rate. Payments mayincrease or decrease accordingly.WHERE TO GO FOR HELPFor additional information or to submit a complaint, you cancontact the Consumer Financial Protection Bureau (CFPB):Consumer Financial Protection BureauP.O. Box 2900Clinton, IA -us/SECTION II: IMPORTANT TERMS OF OUR HOME EQUITYLINE OF CREDITThis disclosure contains important information about ourHome Equity Line of Credit (the line of credit). You shouldread it carefully and retain it for your records.Availability of Terms: All of the terms described below aresubject to change.If these terms change (other than changes due toInterest rate: The percentage rate used to determine the89

changes in the value of the index, as described below), andyou decide, as a result, not to enter into an agreement withus, you are entitled to a refund of any fees you paid to us oranyone else in connection with your application.Security Interest: We will take a mortgage on yourhome. You could lose your home if you do not meet theobligations in your agreement with us.Possible Actions: We can (1) terminate your line of credit,require you to pay us the entire outstanding balance in onepayment, and charge you certain fees; (2) refuse to makeadditional extensions of credit; or (3) reduce your creditlimit if: You engage in fraud or material misrepresentation inconnection with the line of credit. You do not meet the repayment terms. Your action or inaction adversely affects the collateralor our rights in the collateral.We can refuse to make additional extensions of credit orreduce your credit limit if: The value of the dwelling securing the line of creditdeclines significantly below its appraised value forpurposes of the line of credit. We reasonably believe you will not be able to meetthe repayment requirements due to a material changein your financial circumstances. You are in default of a material obligation in theagreement. Government action prevents us from imposing theannual percentage rate provided for or impairs oursecurity interest such that the value of the interest isless than 120 percent of the credit line. A regulatory agency has notified us that continuedadvances would constitute an unsafe and unsoundpractice. The maximum annual percentage rate is reached.The initial agreement permits us to make certain changes tothe terms of the agreement at specified times or upon theoccurrence of specified events.Minimum P

A home equity line of credit is a form of revolving credit in which your home serves as collateral. Because the 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