Home Equity Disclosure Booklet People’s United Bank peoples.com Effective June 2021 L0014 06/2021 00 1 HOME EQUITY PLAN CHECKLIST Home Equity Disclosure Ask your lender to help fill out this checklist. TITLE PRODUCT* PAGE Basic features for comparison Plan A Plan B SECTION I. Fixed annual percentage rate % % When Your Home is on the Line HELOC 2 Variable annual percentage rate % % SECTION II. Important Terms of our Home Equity HELOC 9 • Index used and current value % % Line of Credit • Amount of margin SECTION III. • Frequency of rate adjustments Notice to Mortgage Loan Applicant HELOC, HEL 13 SECTION IV. • Amount/length of discount (if any) Customer Identification Notice ALL 14 • Interest rate cap and floor SECTION V. Length of plan Transfer of Servicing Notice HEL 14 Draw period SECTION VI. SelectLock® Option HELOC 15 Repayment period Initial fees *Product: HELOC = Home Equity Line of Credit Appraisal fee HEL = Home Equity Loan ALL = Home Equity Line of Credit, Home Equity Application fee Loan Up-front charges, including points Closing costs AUTHORIZATION TO OBTAIN CREDIT REPORT Repayment Terms Before you make an application for credit, please note that all applicants must authorize People’s United Bank, During the draw period N.A. (“People’s United”) to obtain a credit report for each Interest and principal payments applicant. The information contained in the report will be used as part of the underwriting process. If you are Interest-only payments unwilling to allow People’s United to obtain a credit Fully amortizing payments report, we cannot start the application process. When the draw period ends SECTION I: WHAT YOU SHOULD KNOW ABOUT HOME EQUITY LINES OF CREDIT Balloon payment? If you are in the market for credit, a home equity plan Renewal available? is one of several options that might be right for you. Before making a decision, however, you should weigh Refinancing of balance by lender? carefully the costs of a home equity line against the benefits. Shop for the credit terms that best meet your What is a home equity line of credit? borrowing needs without posing undue financial risks. A home equity line of credit is a form of revolving credit And remember, failure to repay the amounts you’ve in which your home serves as collateral. Because the borrowed, plus interest, could mean the loss of your home. 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 2 3 from that the balance owed on the existing mortgage. a “margin,” such as 2 percentage points. Because the cost of borrowing is tied directly to the value of the index, it is For example: important to find out which index is used, how often the Appraised value of your home $100,000 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. Percentage x 75% Lenders sometimes offer a temporarily discounted Percentage of appraised value = $75,000 interest rate for home equity lines — an “introductory “ rate Less balance owed on mortgage – $40,000 that is unusually low for a short period, such as six months. Variable-rate plans secured by a dwelling must, by law, Potential line of credit $35,000 have a ceiling (or cap) on how much your interest rate may increase over the life of the plan. Some variable-rate plans In determining your actual credit limit, the lender will limit how much your payment may increase and how low also consider your ability to repay the loan (principal and your interest rate may fall if the index drops. interest), by looking at your income, debts, and other Some lenders allow you to convert from a variable financial obligations as well as your credit history. interest rate to a fixed rate during the life of the plan, or Many home equity plans set a fixed period during let you convert all or a portion of your line to a fixed-term which you can borrow money, such as 10 years. At the installment loan. end of this “draw period,” you may be allowed to renew the credit line. If your plan does not allow renewals, you Costs of establishing and maintaining a home equity line will not be able to borrow additional money once the Many of the costs of setting up a home equity line of credit period has ended. Some plans may call for payment are similar to those you pay when you get a mortgage. in full of any outstanding balance at the end of the For example: period. Others may allow repayment over a fixed period • A fee for a property appraisal to estimate the value of (the “repayment period”), for example, 10 years. your home. Once approved for a home equity line of credit, you • An application fee, which may not be refunded if you are will most likely be able to borrow up to your credit limit turned down for credit. whenever you want. Typically, you will use special checks to draw on your line. Under some plans, borrowers can use a • Up-front charges, such as one or more points (one point credit card or other means to draw on the line. There may be equals 1 percent of the credit limit). other limitations on how you use the line. Some plans may • Closing costs, including fees for attorneys, title search, require you to borrow a minimum amount each time you and mortgage preparation and filing; property and title draw on the line (for example, $300) and to keep a minimum insurance; and taxes. amount outstanding. Some plans may also require that In addition, you may be subject to certain fees during the you take an initial advance when the line is set up. plan period, such as annual membership or maintenance What should you look for when shopping for a plan? fees and a transaction fee every time you draw on the credit If you decide to apply for a home equity line of credit, look line. for the plan that best meets your particular needs. Read You could find yourself paying hundreds of dollars to the credit agreement carefully, and examine the terms establish the plan. And if you were to draw only a small and conditions of various plans, including the annual amount against your credit line, those initial charges would percentage rate (APR) and the costs of establishing the substantially increase the cost of the funds borrowed. On plan. Remember though, that the APR for a home equity the other hand, because the lender’s risk is lower than for line is based on interest rate alone and will not reflect the other forms of credit, as your home serves as collateral, closing costs and other fees and charges, so you’ll need to annual percentage rates for home equity lines are generally compare these costs, as well as the APRs, among lenders. lower than rates for other types of credit. The interest you save could offset the costs of establishing and maintaining Variable Interest rates Home equity lines of credit typically involve variable the line. Moreover, some lenders waive some or all of the rather than fixed interest rates. The variable rate must be closing costs. based on a publicly available index (such as the prime How will you repay your home equity plan? rate published in some major daily newspapers or a U.S. Before entering into a plan, consider how you will pay Treasury bill rate). In such cases, the interest rate you pay back the money you borrow. Some plans set a minimum for the line of credit will change, mirroring changes in the payment that includes a portion of the principal (the value of the index. Most lenders cite the interest rate you amount you borrow) plus accrued interest. But, unlike with will pay as the value of the index at a particular time plus typical installment loan agreements the portion of your 4 5 payment that goes toward principal may not be enough other finance charges. to repay the principal by the end of the term. Other plans • The APR for a home equity line of credit is based on the may allow payment of only the interest during the life of periodic interest rate alone. It does not include points or the plan, which means that you pay nothing toward the other charges. principal. If you borrow $10,000, you will owe that amount Disclosures from Lenders when the payment plan ends. The federal Truth in Lending Act requires lenders to disclose Regardless of the minimum required payment on your the important terms and costs of their home equity plans, home equity line, you may choose to pay more, and many including the APR, miscellaneous charges, the payment lenders offer a choice of payment options. Many consumers terms, and information about any variable-rate feature. choose to pay down the principal regularly as they do with And in general, neither the lender nor anyone else may other loans. For example, if you use your line to buy a boat, charge a fee until after you have received this information. you may want to pay it off as you would a typical boat loan.