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some useful description of terms widely used when dealing
with home equity loans. These definitions are directly
from the Federal Reserve Board.
Annual membership or maintenance fee -
An annual charge for having the line of credit available.
Charged regardless of whether or not the line is used.
Annual percentage rate (APR) - The cost
of credit on a yearly basis expressed as a percentage.
Application fee - Fees that are paid
upon application. May include charges for property appraisal
and a credit report.
Balloon payment - A lump-sum payment
that may be required when the plan ends.
Cap - A limit on how much the variable
interest rate may increase during the life of the plan.
Cash Out Refinancing - Is a method of
refinanancing a home for more than the amount owed on
the original mortgage. The amount difference between the
new and the existing mortgage is considered a home equity
loan.
Closing costs - Fees paid at closing,
including attorneys fees, fees for preparing and filing
a mortgage, fees for title search, taxes, and insurance.
Credit limit - The maximum amount that
may be borrowed under the home equity plan.
Equity - The difference between the
fair market value (appraised value) of the home and the
outstanding mortgage balance.
Index - Published rate that serves as
a base for the interest rate charged on a home equity
line and also as the base for rate changes used by the
lender.
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.
Minimum payment - The minimum amount
that you must pay (usually monthly) on your account. Under
some plans, the minimum payment may cover interest only;
under others, it may include both principal and interest.
Points - One point is equal to 1 percent
of the amount of the credit line. Points must usually
be paid at closing and are in addition to monthly interest.
Security interest - An interest that
a lender takes in the borrower's property to ensure 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.
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