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 Home Equity Glossary

Term  
Annual Membership or Participation Fee An amount that is charged annually for having the line of credit available. It is charged regardless of whether or not you use the line.

Note: check your terms to ensure that the lender does not charge an annual membership or participation fee. If they do, negotiate to have these terms removed or find another lender.

Annual Percentage Rate (APR) The cost of credit on a yearly basis expressed as a percentage.
Application Fee Fees that are paid upon application. An application fee may include charges for property appraisal and a credit report.

Note: your application form will be sent to participating lenders who do not charge an application submission fee.

Balloon Payment A lump-sum payment that you may be required to make under a plan when the plan ends.
Cap A limit on how much the variable-interest rate can increase during the life of the plan.
Closing Costs Fees paid at closing, including attorneys' fees, fees for preparing and filing a mortgage, for taxes, title search, and insurance.

Note: check your terms for any closing costs. Most lenders do not charge closing costs unless you close your account early. Again, negotiate to have closing costs removed.

Credit Limit The maximum amount that you can borrow under the home equity plan.
Equity The difference between the fair market value (appraised value) of your home and your outstanding mortgage balances.

Index

The basis for rate changes that the lender uses to decide how much the annual percentage rate will change over time.

Note: most lenders use the Wall Street Journal PRIME RATE as its index. If they don't, ask to view their rate trends for the past 2 years. Check for rate change frequency and how high their rate has climbed.

Interest Rate The periodic charge, expressed as a percentage, for use of credit.
Margin The number of percentage points the lender adds to the index rate to determine the annual percentage rate to be charged.
Minimum Payment The minimum amount that you must pay (usually monthly) on your account. In some plans, the minimum payment may be "interest only." In other plans, the minimum payment may include principal and interest.
Points A point is equal to one percent of the amount of your credit line. Points usually are collected at closing, and are in addition to monthly interest.

Note: most lenders do not charge points. But some lenders do allow points in exchange for lower interest rates. Check with the lender.

Security Interest An interest that a lender takes in the borrower's property to assure repayment of a debt.
Transaction Fee A fee charged each time you draw an amount on your credit line.

Note: Most lenders do not charge an access fee. However, some lenders 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. Check your terms.

* Note: The proceeding features and terms may vary by lender. Check with your lender before finalizing your home equity decision.

Home Equity Application

USING YOUR HOME EQUITY