RiteWays guide to helping you understand Home Equity.
An amount charged annually for having the line of credit available. The fee is charged regardless of whether or not you draw against the credit line.
Annual percentage rate (APR)
The cost of credit on a yearly basis expressed as a percentage. The APR is distinguished from the “named” or “nominal” rate which is the note rate.
An application fee may include the cost of an appraisal and credit report. The fee is charged when applying for the loan.
A lump-sum payment that you may be required to make under a plan when the plan ends. You should have the option to make payments sufficient to avoid making the balloon payment.
A limit on how much the variable interest rate can increase during the life of the plan.
Fees paid at the time of closing. Depending on the state in which you reside, these fees may pay for attorney’s services, recording documents, real estate taxes, title search and title insurance.
The maximum amount you are allowed to borrow under the home equity plan. The limit can depend upon your income, debts, equity in your home and the bank’s program guidelines.
The difference between the fair market value (appraised value) of your home and the debts claimed against it.
A statistical indicator of a price level expressed as a rate. Examples include Prime, T-Bill, MTA, 11 Dist. COF, LIBOR, etc. The index is the base rate used by the lender to calculate the interest rate you pay on your loan.
The factor applied to the debt to determine the charge for borrowing money. The interest rate is expressed as a percentage.
The spread added to the index to determine the interest rate you are charged for borrowing money. The margin is expressed as a percentage.
The smallest amount you are allowed to pay toward your debt. The minimum payment may include principal and interest.
A point is equal to one percent of the amount of your credit line. Points are a closing cost which, under certain circumstances, may be recognized as interest by the IRS.
“Security interest” is the type of interest a lender has in the property of the borrower. The borrower’s property is set aside so that the lender can sell it if the borrower defaults on the loan. A mortgage and deed of trust are security instruments.
The fee charged each time you draw on your credit line.
An interest rate that changes periodically. Payments may increase or decrease depending on a particular financial index.