| Home Equity Loan Program (HELP): Q
& A
Q: What is a Home Equity Loan
Program (HELP)?
A: Is a loan where a member can use the equity in
that member's home as collateral.
Q: What is the primary benefit of a
HELP?
A: For many people, there is a tax advantage
associated with borrowing against the equity in their primary residence. You should ask
your tax advisor whether and how this advantage might apply to your tax situation.
Q: What can a HELP be used for?
A: A HELP can be used for many common money
needs. For example: home repairs, college expenses, debt consolidations and other
worthwhile needs. It is important for members to realize that they are using their home
for collateral and if they are unable to repay the HELP, they could lose their home.
Q: Is there a minimum and maximum line
of credit?
A: Yes. Usually there is a minimum credit line (i.e. $15,000) and a
maximum credit line (i.e. $150,000).
Q: How much can a member borrow:
A: The amount a member can borrow depends on two major items: a)
record of repayment along with an ability to repay, and b) the equity in the house.
Members approved for a HELP may be able to borrow up to percentage
(i.e. 90%) of the appraised value of their home minus any outstanding first mortgage.
The following is an example of how this works.
Appraised value $150,000
Multiply by 90% $135,000
Minus 1st mortgage 52,500
Maximum allowed $82,500
Q: Do members need to borrow the full
amount at one time?
A: No. The amount approved will be an open line
of credit. With a line of credit, members can borrow whatever amount they want up to the
maximum credit line amount.
Q: How will an open-end line of credit work?
A: Members approved for the open-end line of credit will receive
a book of HELP checks to draw on the line of credit.
Q: How will the HELP checks work?
A: HELP checks work just like regular share draft
checks (except a HELP check may have a minimum amount limit (i.e. $1.00) and a member may
not exceed the maximum amount of approved credit. The amount of each check will be added
to member's HELP credit line balance.
Q: What happens if a member overdraws
the line of credit?
A: If a member writes a check for an amount that
is more than the unused amount of credit available to that member, the check will not
clear (it will bounce) and the member will most likely be charged an NSF fee.
Terms to Understand
Q: What does the term HELP stand for?
A: The term is used as an acronym for Home Equity Line (of Credit) Program.
It is an open-end line of credit that is secured by a mortgage on a member's home.
Q: Why is it called an "open-end line of
credit"?
A: The term open-end refers to the fact that if a member's
request is granted, that member will be given a line of credit upon which they may draw
any amount up to the maximum amount (with a specified minimum) whenever they wish and for
whatever purpose they choose.
Q: Is this line of credit a revolving line?
A: Yes. As a member repays a portion or all of the outstanding balance, that member is
then able to borrow up to the maximum amount of the credit line again.
Q: What does the term "appraised value" mean?
A: Before a line of credit can be granted, a licensed appraiser must establish
the market value of a member's home. This appraised value will be used to establish the
maximum line of credit allowed.
Q: Can a member obtain money immediately?
A: No. The Truth in Lending Act gives a person 3 days from day the account was
opened to cancel the credit line. For that reason, a member cannot obtain the money until
that period of time has passed.
Interest Rate & Payment Rate
Q: What is the interest rate on HELP?
A: The interest rate (ANNUAL PERCENTAGE RATE) for HELP is usually
based on a specified index (i.e. the highest Prime Rate published in The Wall Street
Journal). In many cases the rate offered at your credit union will be less than the
index rate ( i.e. .50% less). Your interest rate may change monthly as a result of the
prime rate changing. Using the example stated above, if the Prime Rate was at 7% then the
interest rate would be 6.50% (7% - .50% = 6.50%).
Q: What is the payment rate?
A : To illustrate how
a payment rate is calculated, we'll assume you borrow $10,000 on a 25-year line that has a
10-draw period. The monthly payment will be determined by applying the current interest
rate and calculating equal monthly payments based on the total loan balance outstanding
and the remaining months of this loan which will equal 300 months (12 mths x 25 yrs) less
the number of months that have expired since signing this contract. After the draw period
ends, you will no longer be able to obtain credit advances and must pay the outstanding
balance over 180 monthly statement periods (the "repayment period"). During the
repayment period, payments will be due monthly. Your minimum monthly payment will equal
1/180th of the balance that was outstanding at the end of the draw period PLUS
interest that has accrued on the remaining balance. If $10,000 is outstanding at the
beginning of the repayment period (the end of the draw period), then the monthly payment
during the repayment period would be 1/180th of the initial balance plus
monthly accrued interest (assuming a 5% ANNUAL PERCENTAGE RATE) resulting in
monthly payments of $79.09.
Q: Is there a time limit on this line of credit?
A: Yes. A member may obtain advances on the available line of credit during the
specified draw period (i.e. 10 years). After the draw period ends, a member will no longer
be able to obtain credit advances (unless a new line of credit is established) and must
repay the outstanding balance over the remaining life of the loan (i.e.15 years).
Q: Can payroll deduction be used to repay a HELP?
A: Yes. In most cases a member's normal payroll deduction will be credited
(added) to the member's share account and once a month a member's share account will be
debited (subtracted from) to make the required monthly HELP payment.
Q: Can a HELP be paid off early?
A: Yes. Usually there is no penalty for early repayment but any penalties will
be described in your loan agreement.
Eligibility & Verification
Q: Who is eligible for HELP?
A: Only a credit union member who meets the credit requirements
for the HELP is eligible.
Q: Will a credit report be required?
A: Yes. Your credit union will carefully review the HELP application and will
draw reports from nationally recognized credit reporting agencies.
Q: Will employment be verified?
A: Yes. Because approval of the HELP will be based in part upon a member's
ability to repay, the member's employment and amount of income will be verified.
Q: Is credit life insurance available for A HELP?
A: Yes. Ask your credit union for details.
Q: Is this insurance required in order to receive a HELP?
A: No. It is not required.
Q: Are there any fees charged for a HELP?
A: Whether your credit union charges fees for HELP will be disclosed in the
materials received when appying for a loan. While many credit unions waive fees, you may
want to inquire about any fees for the application, appraisal and closing.
How to Apply
Q: How does a member apply for a HELP?
A: Applications may be requested by YOUR CREDIT UNION..
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