**Please Read The Disclosure Before Submitting Your Application**

(You must click through at the bottom of the disclosure page to proceed to application.)

Home Equity Disclosures

Home Equity Line of Credit Pre-disclosure

IMPORTANT TERMS OF YOUR HOME EQUITY LINE OF CREDIT

This disclosure contains important information about your Heritage Federal Credit Union Home Equity Open-End Credit Plan. You should read it carefully and keep a copy for your records.

Availability of Terms: All of the terms described below are subject to change. If any of these terms change (other than the annual percentage rate) and you decide, as a result, not to enter into an agreement with us, you are entitled to a refund of any fees that you paid to us or anyone else in connection with your application.

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.

Possible Actions:
Termination and Acceleration
We can terminate the Home Equity Open-End Credit Plan and require you to pay us the entire outstanding balance in one payment and charge you certain fees if:

• you commit fraud or material misrepresentation at any time in connection with this Plan;
• you do not meet the repayment terms of this Plan;
• your action or inaction adversely affects the collateral for the Plan or our rights in the collateral.

Suspension or Reduction
We can refuse to make additional extensions of credit or reduce your credit line if:

• the value of your dwelling declines significantly below its appraised value for purposes of this Plan;
• we reasonably believe that you will not be able to meet the repayment requirements due to a material change in your financial circumstances;
• you are in default of a material obligation of this Plan;
• government action prevents us from imposing the annual percentage rate provided for under this Plan or impairs our security interest such that the value of the interest is less than 120 percent of the credit line;
• a regulatory agency has notified us that continued advances would constitute an unsafe and unsound practice;
• the maximum annual percentage rate under this Plan is reached.

Change in Terms
Your home equity credit agreement permits us to make certain changes to the terms of this Plan at specified times or upon the occurrence of specified events.

Minimum Payment Requirements: You can obtain credit advances any time during the term of this Plan, which is twenty (20) years. You must make minimum monthly payments throughout the term of this Plan. Your minimum monthly payment will equal two (2) percent, rounded up to the nearest dollar, of the plan balance as of the last day of each billing cycle, or $50.00, whichever is greater, together with any amount past due, any amount by which you have exceeded your credit limit shown on the Home Equity Open-end Credit Plan, and any amount due for all other charges that may be imposed.

The minimum monthly payments may not be sufficient to fully repay the principal balance on your line of credit by the maturity date. If they are not, you will be required to pay the outstanding balance in a single "balloon" payment.

Fees & Charges: To open a line of credit with us, you may have to pay a processing fee of $150.00. If your initial advance is less than $10,000.00, you may be charged a fee of $150.00. If you ask, we will tell you when you may have to pay these fees.

Minimum Payment Example: 70% or less loan-to-value : If you took no other credit advances other than an initial advance of $10,000.00 and made only the minimum monthly payment, it would take eleven (11) years and five (5) months to pay off this balance at an ANNUAL PERCENTAGE RATE OF 4.00%. During that period you would make 83 payments varying between $200.00 and $50.00, followed by 53 payments of $50.00 and 1 final payment of $18.75. 70.01% to 80.00% loan-to-value : If you took no other credit advances other than an initial advance of $10,000.00 and made only the minimum monthly payment, it would take eleven (11) years and six (6) months to pay off this balance at an ANNUAL PERCENTAGE RATE OF 4.25%. During that period, you would make 84 payments varying between $200.00 and $50.00, followed by 53 payments of $50.00 and 1 final payment of $37.03. 80.01% to 100.00% loan-to-value : If you took no other credit advances other than an initial advance of $10,000.00 and made only the minimum monthly payment, it would take twelve (12) years and six (6) months to pay off this balance at an ANNUAL PERCENTAGE RATE OF 6.25%. During that period you would make 93 payments varying between $200.00 and $50.00, followed by 56 payments of $50.00 and 1 final payment of $41.13.

Property Insurance: You must carry insurance on the property that secures this Plan.

Transaction Requirements: The minimum credit advance you can receive is $500.00 for the first advance, and $500.00 for each subsequent advance. You may obtain advances under this Plan in person at the credit union, by phone, by mail, by Internet banking, or by writing a check against the line of credit.

Tax Deductibility: You should consult a tax advisor regarding the deductibility of interest and charges for this Plan.

Prepayment: You may prepay all or any amounts owed under this Plan without penalty.

Variable Rate Feature: The Home Equity Line of Credit has a variable rate feature whereby the annual percentage rate (corresponding to the periodic rate) as well as the minimum monthly payment can change as a result.

The annual percentage rate is based on the value of an index. The index is the Prime Rate as published in the Wall Street Journal on the first business day of each month. In the event more than one prime rate is given in the money rates column of the Wall Street Journal for U.S. money center commercial banks, the lower rate given will be used to determine the index. The annual percentage rate that will apply to your line of credit will be the Prime Rate described above or the Prime Rate plus or minus a margin. Your margin will depend on your loan-to-value ratio.

Historical information on the index values is included in this document. Ask us for the current index, margin, and annual percentage rate. After you open the line of credit, rate information will be provided on periodic statements that we send you.

The annual percentage rate includes only interest and not other costs.

Rate Changes: The annual percentage rate can change monthly. The maximum ANNUAL PERCENTAGE RATE that can apply is eighteen (18) percent. Except for this eighteen (18) percent cap, there is no limit on the amount by which a payment or the annual percentage rate can change each month.

Maximum Rate and Payment Example: If you had an outstanding balance of $10,000.00, the minimum monthly payment at the maximum ANNUAL PERCENTAGE RATE of eighteen (18) percent would be $200.00. This annual percentage rate could be reached at the time of the first payment.

Historical Example: The following tables show how the annual percentage rate and minimum payments for a single $10,000.00 credit advance would have changed based on changes in the index over the last 15 years. The index values are from the first business day of January each year. While only one payment amount each year is shown, payments would have varied during each year. The table assumes that no additional credit advances were taken, that only the minimum monthly payments were made, and that the rate remained constant during each year. It does not necessarily indicate how the index or your payments would change in the future.

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* This is a margin we have used recently.
** Loan paid off.

When Your Home Is On The Line: What You Should Know About Home Equity Lines of Credit

More and more lenders are offering home equity lines of credit. By using the equity in your home, you may qualify for a sizable amount of credit, available for use when and how you please, at an interest rate that is relatively low. Furthermore, under the tax law-depending on your specific situation-you may be allowed to deduct the interest because the debt is secured by your home.

If you are in the market for credit, a home equity plan may be right for you or perhaps another form of credit would be better. Before making this decision, 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 risk. And, remember, failure to repay the line could mean the loss of your home.

What is a home equity line of credit?

A home equity line is a form of revolving credit in which your home serves as collateral. Because the home is likely to be a consumer's largest asset, many homeowners use their credit lines only for major items such as education, home improvements, or medical bills and not for day-to-day expenses.

With a home equity line, you will be approved for a specific amount of credit-your credit limit-meaning the maximum amount you can borrow at any one time while you have the plan.

Many lenders set the credit limit on a home equity line by taking a percentage (say, 75 percent) of the appraised value of the home and subtracting the balance owed on the existing mortgage. For example:

Appraisal of home $100,000
Percentage X 75%
Percentage of appraised value $75,000
Less mortgage debt - $40,000
Potential credit line $35,000

In determining your actual credit line, the lender also will consider your ability to repay, by looking at your income, debts, and other financial obligations, as well as your credit history.

Home equity plans often set a fixed time during which you can borrow money, such as 10 years. When this period is up, the plan may allow you to renew the credit line. But in a plan that does not allow renewals, you will not be able to borrow additional money once the time has expired. Some plans may call for payment in full of any outstanding balance. Others may permit you to repay over a fixed time, for example 10 years.

Once approved for the home equity plan, usually you will be able to borrow up to your credit limit whenever you want. Typically, you will be able to draw on your line by using special checks.

Under some plans, borrowers can use a credit card or other means to borrow money and make purchases using the line. However, there may be 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) and to keep a minimum amount outstanding. Some lenders also may require that you take an initial advance when you first set up the line.

What should you look for when shopping for a plan?

If you decide to apply for a home equity line, look for the plan that best meets your particular needs. Look carefully at the credit agreement and examine the terms and conditions of various plans, including the annual percentage rate (APR) and the costs you'll pay to establish the plan. The disclosed APR will not reflect the closing costs and other fees and charges, so you'll need to compare these costs, as well as the APR's, among lenders.

Interest Rate Charges and Plan Features.

Home equity plans typically involve variable interest rates rather than fixed rates. A 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); the interest rate will change, mirroring fluctuations in the index. To figure the interest rate that you will pay, most lenders add a margin, such as 2 percentage points, to the index value. Because the cost of borrowing is tied directly to the index rate, it is important to find out what index and margin each lender uses, how often the index changes, and how high it has risen in the past.

Sometimes lenders advertise a temporarily discounted rate for home equity lines-a rate that is unusually low and often lasts only for an introductory period, such as six months.

Variable rate plans secured by a dwelling must have a ceiling (or cap) on how high your interest rate can climb over the life of the plan. Some variable-rate plans limit how much your payment may increase, and also how low your interest rate may fall if interest rates drop.

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

Agreements generally will permit the lender to freeze or reduce your credit line under certain circumstances. For example, some variable-rate plans may not allow you to get additional funds during any period the interest rate reaches the cap.

Costs to Obtain a Home Equity Line.

Many of the costs in 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, which estimates the value of your home.
An application fee, which may not be refundable if you are turned down for credit.
Up-front charges, such as one or more points (one point equals one percent of the credit limit).
Other closing costs, which include fees for attorneys, title search, mortgage preparation and filing, property and title insurance, as well as taxes.
Certain fees during the plan. For example, some plans impose yearly membership or maintenance fees.
You also may be charged a transaction fee every time you draw on the credit line.

You could find yourself paying hundreds of dollars to establish the plan. If you were to draw only a small amount against your credit line, those charges and closing costs would substantially increase the cost of the funds borrowed. On the other hand, the lender's risk is lower than for other forms of credit because your home serves as collateral. Thus, annual percentage rates for home equity lines are generally lower than rates for other types of credit. The interest you save could offset the initial costs of obtaining the line. In addition, some lenders may waive a portion or all of the closing costs.

How will you repay your home equity plan?

Before entering into a plan, consider how you will pay back any money you might borrow. Some plans set minimum payments that cover a portion of the principal (the amount you borrow) plus accrued interest. But, unlike the typical installment loan, the portion that goes toward principal may not be enough to repay the debt by the end of the term. Other plans may allow payments of interest alone during the life of the plan, which means that you pay nothing toward the principal. If you borrow $10,000, you will owe that entire sum when the plan ends.

Regardless of the minimum payment required, you can pay more than the minimum and many lenders may give you a choice of payment options. Consumers often will 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.

With a variable 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 initial payments would be $83 monthly. If the rate should rise over time to 15 percent, your payments will increase to $125 per month. Even with payments that cover interest plus some portion of the principal, there could be a similar increase in your monthly payment, unless the agreement calls for keeping payments level throughout the plan.

When you sell your home, you probably will be required to pay off your home equity line in full. If you are likely to sell your house in the near future, consider whether it makes sense to pay the up-front costs of setting up an equity credit line. Also keep in mind that leasing your home may be prohibited under the terms of your home equity agreement.

Comparing a line of credit and a traditional second mortgage loan.

If you are thinking about a home equity line of credit you also might want to consider a more traditional second mortgage loan. This type of loan provides you with a fixed amount of money repayable over a fixed period. Usually the payment schedule calls for equal payments that will pay off the entire loan within that time. You might consider a traditional second mortgage loan 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 the APR and other charges. You cannot, however, simply compare the APR for a traditional mortgage loan with the APR for a home equity line because the APRs are figured differently.

The APR for a traditional mortgage takes into account the interest rate charged plus points and other finance charges.

The APR for a home equity line is based on the periodic interest rate alone. It does not include points or other charges.

Disclosures from Lenders.

The 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 has changed before the plan is opened (other than a variable-rate feature), the lender must return all fees if you decide not to enter into the plan because of the changed term.

When you open a home equity line the transaction puts your home at risk. For 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 creditor in writing within the three-day period. The creditor must then cancel the security interest in your home and return all fees-including any application and appraisal fees-paid in opening the account.

Glossary

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.

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.

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.

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 balance.

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

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.

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 on your credit line.

Variable rate. An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.

Where to Go for Help.

The National Credit Union Administration is responsible for enforcing the federal Truth in Lending Act, the law that governs credit term disclosure for home equity lines, for federal credit unions. Any questions concerning compliance with the act should be directed to:

National Credit Union Administration, 1775 Duke St., Alexandria, VA 22314 Phone (703) 518-6360

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©2006 Heritage Federal Credit Union, All Rights Reserved.
Serving Vanderburgh and Warrick County - Evansville, Newburgh and Boonville.

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