High Loan to Value HELOC

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.

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 under 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:

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.

Many home equity plans often set a fixed time during which you can borrow money, such as 10 years. At the end of this "draw period" the plan may allow you to renew the credit line. If your plan that does not allow renewals, you will not be able to borrow additional money once the period has ended. Some plans may call for payment in full of any outstanding balance at the end of the period. Others may permit you to repay over a fixed time (the "repayment period"), 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 use special checks to draw on the line. Under some plans, borrowers can use a credit card or other means to borrow money and make purchases using the line.

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.

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 APR for a home equity line is based on interest alone and will not reflect the closing costs and other fees and charges, so you'll need to compare these costs, as well as the APRs, among lenders.

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 value of 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 value of the index, 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.

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.

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 period.

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.

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 the loan period. 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 charge 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. If the home involved is your principle dwelling The Truth in Lending Act gives you three days from the day the account was opened to cancel the credit line (This is true only for primary residence). 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.

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.

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

The following federal agency is responsible for enforcing the federal Truth in Lending Act, the law that governs credit term disclosure for home equity lines. Any questions concerning compliance with the act by The Savings Institute should be directed to this enforcement agency.

Office of Consumer Affairs
Federal Deposit Insurance Corporation
550 Seventeenth Street, N.W., Room PA-1730
Washington, D.C. 20429
(202) 942-3100 or (800) 934-FDIC
www.fdic.gov

SECTION II: Important Terms of The Savings Institute's High Loan To Value Equity Line of Credit

This disclosure contains important information about our Home Equity Line of Credit. (For definitions of some of the terms used see paragraph 13 below.) You should read this disclosure carefully and keep a copy for your records. Ask us about our other Home Equity Line of Credit program.

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

2. 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.

(a) We can terminate your account, and require you to pay us the entire outstanding balance in one payment ("accelerate") if:

                 You engage in fraud or material misrepresentation in connection with the line.
                 You do not meet the repayment terms.
                 Your action or inaction adversely affects the collateral or our rights in the collateral.

(b) We can refuse to make additional extensions of credit or reduce your credit limit if:

                 The value of your house securing the line declines significantly below its appraised value for purposes of the line.
                 We reasonably believe 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 in the agreement or an "event of default" is occurring.
                 Government action prevents us from imposing the annual percentage rate provided for, or impairs our security interest such that the value of the interest is less than 120 percent of, the credit line.
                 Our regulatory agency has notified us that continued advances would constitute an unsafe and unsound practice.
                 The maximum annual percentage rate is reached.

(c) The initial agreement also permits us to make certain changes to the terms of the agreement upon the occurrence of specified events.

4. Minimum Payment Requirements: You can obtain credit advances for 5 years (estimated). This is called the "Draw Period". You and we may agree to extend the Draw Period to an additional 4 years and 10 months, provided you meet our credit underwriting standards. During the Draw Period, payments will be due monthly and will equal interest shown on the bill and late payment fees plus any unpaid minimum payment from prior bills. This minimum payment will not reduce the outstanding principal on your line, and will not pay membership fees which become part of principal. During the Draw Period, if you make only the minimum payments, at the end of the loan, you will be required to pay the entire balance in monthly installments during the Repayment Period.

After the Draw Period ends, you will no longer be able to obtain credit advances and you must repay the outstanding balance of loan advances over a 10 year period (e). This is called the Repayment Period.

During the Repayment Period payments will be made in equal installments which will include both principal and interest. The minimum payment will repay the balance that is outstanding on your line of credit by the end of the Repayment Period.

5. Minimum Payment Example: If you make only the minimum payments and took no other advances, and if you do not extend the Draw Period at the end of the first five years, it would take 15 years (estimated) to pay off an advance of $10,000.00 at an ANNUAL PERCENTAGE RATE of 9.250% during the Draw Period and an ANNUAL PERCENTAGE RATE of 9.315% during the Repayment Period. These ANNUAL PERCENTAGE RATES are the rates that would have been in effect as of January 4, 2008. During this period, you would make 60(e) monthly payments of $77.08 (e) (during the Draw Period), followed by 120 monthly payments of $128.39 (e) (during the Repayment Period).

If you and we agree to extend the Draw Period to 4 years and 10 months, it 10 years (estimated) to pay an advance of $10,000.00 at an ANNUAL PERCENTAGE RATE of 9.250% during the Draw Period and an ANNUAL PERCENTAGE RATE of 9.315% during the Repayment period. During this period, you would make 118(e) monthly payments of $77.08(e) (during the Draw Period) followed by 120(e) monthly payments of $128.39 (e) (during the Repayment Period.)

6. (a) Our Fees and Charges: In order to open and maintain an account, you must pay us certain fees and charges.

 Application Fee: $50.00 (due at application) We will refund this fee to you if within 3 business days of receiving this disclosure and the brochure on home equity lines of credit, you let us know that you have decided not to enter into this transaction. At our discretion we may waive this fee.

 Annual Membership Fee: $50.00 (charged to your account each year). At our discretion, we may waive this fee the first year you open your account.

(b) Fees to Third Parties. We may require you to pay a fee or fees to third parties to open the account. Let us itemize those fees. (All of these disclosures are based on our good faith estimates as of the time we wrote this and actual costs, if any, may differ.) At our discretion, we may waive any of the fees listed below.

(i) Lawyer's Fees: If there are legal problems with the title, or circumstances which raise legal issues, we can (in our discretion) require the assistance of a lawyer to prepare the documents and close the transaction. In such a case, you may have to pay a lawyer's fee. We estimate that this fee will cost approximately $200.00 (this fee can range from $150.00 to $250.00).

(ii) Recording Fees: You may also be charged the recording fees imposed by the town or city clerk. We estimate that this fee will cost approximately $38.00 (this fee can range from $38.00 to $75.00). A recording pickup fee of $44.00 will be charged to cover fees imposed by the company doing the recording.

(iii) Appraisal: You may be charged an appraisal fee. We estimate that this fee will equal approximately $100.00 (the fee can range from $18.00 to $500.00)

(iv) Homeowner's and/or Flood Insurance: Most customers are already maintaining what we consider to be adequate fire and other hazard insurance on their home. If not, we will require that you increase or change your insurance coverage, including where applicable, flood insurance. The coverage must be at least equal to the sum of any prior mortgages on the home plus the credit limit for the account. If the sum total of these two exceed the replacement value of the dwelling, we will require coverage only up to the replacement value of the dwelling.

(v) Title Exam and/or Title Insurance: We may require you to pay for a title exam. We may in our discretion also require you to pay for title insurance. We estimate that the fee for a title exam will cost approximately $170.00 (this fee can range from $53.00 to $170.00). We estimate that the fee for title insurance will equal approximately $0.90 per $1,000 of coverage. (Thus, for example, title insurance could equal $45.00 for $50,000.00 of coverage and $90.00 for $100,000.00 of coverage.) If we obtain title insurance, we require coverage equal to the credit limit.

(vi) Flood Hazard Determination Fee: We may require you to pay for a professional determination that your property is or is not in a flood hazard zone. The cost for this determination is $17.95

These third party fees (excluding homeowner's or flood insurance) can range in total from $0 if we exercise our discretion to waive all of these fees, to $751.95 (assuming $100,000.00 of title insurance coverage).

7. Minimum Draw Requirement. The minimum loan advance that you can receive is $500.00

8. Tax Deductibility. You should consult a tax advisor regarding the deductibility of interest and charges under the plan.

9. Variable-Rate Draw Period/Fixed Rate Repayment Period: During the Draw Period, the plan has a variable-rate feature, and the annual percentage rate (corresponding to the periodic rate) and the minimum monthly payment can change as a result. During the Draw Period, the annual percentage rate is based on the value of an index.

At the beginning of Repayment Period, the annual percentage rate for the Repayment Period is determined based on an Index, the Annual Percentage Rate will then remain fixed for the Repayment Period.

The index on which the annual percentage rate is based during the Draw Period is a different index than the index used to determine the fixed annual percentage rate for the Repayment period.

During the Draw Period, your rate is based on the index published in the Wall Street Journal, Eastern Edition, (“the Journal”)" under the designation “Money Rates" and shown as "prime rate" or similar language used by the Journal for that index. If more than one rate is shown, we use the highest. To determine the annual percentage rate that will apply to your account during the Draw Period, we add a margin to this value of the index.

The annual percentage rate during the Repayment Period will be fixed at the beginning of the Repayment Period based on an index. The index is the weekly average yield on U.S. Treasury Securities adjusted to a constant maturity of 10 years. To determine the ANNUAL PERCENTAGE RATE for the Repayment Period, we add a margin to the value of this index.

The annual percentage rates during the Draw and Repayment Periods include only interest and not other costs.

Ask us for the current index values, margins and annual percentage rates. After you open an account, rate information will be provided on periodic statements that we send you.

10. Rate Changes: The annual percentage rate can change monthly (e) during the Draw Period. The maximum ANNUAL PERCENTAGE RATE that can apply during the life of the account is 18%. This maximum rate is called the "lifetime cap". Apart from this "lifetime cap", there is no limit on the amount by which the rate can change during any one-year period during the Draw Period.

After the Draw Period, the Annual Percentage Rate can change once more at the start of the Repayment Period. The ANNUAL PERCENTAGE RATE that is set at the start of the Repayment Period will not be more than 18%. Once the Repayment Period annual percentage rate has been determined, it will remain fixed for the entire Repayment Period.

11. Maximum Rate and Payment Example. If you had an outstanding balance of $10,000.00, the minimum monthly payment during the Draw Period would be $150.00 at the Draw Period maximum ANNUAL PERCENTAGE RATE of 18%. This annual percentage rate could be reached during the 1st month of the plan. The minimum monthly payment during the Repayment Period would be $180.19 at the Repayment Period maximum ANNUAL PERCENTAGE RATE of 18%.

12. Historical Example: The following tables show how the annual percentage rate and minimum monthly payments for a single $10,000.00 advance would have changed based on changes in the indices over the last 15 years. The index values during the Draw Period are from the Wall Street Journal most recently published as of the first day of January of each year. While only one payment amount per year is shown, payments would have varied slightly during the year. The index values during the Repayment Period are from the first week ending in January of each year.

The tables assume that no additional loan advances were taken, that only the minimum payments were made, and that the rate remained constant during each year. They do not necessarily indicate how the index or your payments will change in the future.

Year - first week ending in January	Index %	Margin	Annual Percentage Rate (%)	Minimum Monthly Payment	Remaining Balance
		(a)
1994	6.000%	2.000%	8.000%	$66.67	$10,000.00	Draw Period
1995	8.500%	2.000%	10.500%	$87.50	$10,000.00
1996	8.250%	2.000%	10.250%	$85.42	$10,000.00
1997	8.250%	2.000%	10.250%	$85.42	$10,000.00
1998	8.500%	2.000%	10.500%	$87.50	$10,000.00
1999	4.700%	4.875%	9.575%	$129.81	$9372.71	Repayment
2000	6.410%	4.875%	9.575%	$129.81	$8682.68	Period
2001	5.100%	4.875%	9.575%	$129.81	$7923.59
2002	5.950%	4.875%	9.575%	$129.81	$7088.53
2003	3.920%	4.875%	9.575%	$129.81	$6169.91
2004	4.270%	4.875%	9.575%	$129.81	$5159.39
2005	4.290%	4.875%	9.575%	$129.81	$4047.75
2006	4.356%	4.875%	9.575%	$129.81	$2824.87
2007	4.686%	4.875%	9.575%	$129.81	$1479.61
2008	4.440%	4.875%	9.575%	$129.81	$0.00

Year - first week ending in January	Index %	Margin	Annual Percentage Rate (%)	Minimum Monthly Payment	Remaining Balance
		(a)
1994	6.000%	2.000%	8.000%	$66.67	$10,000.00	Draw
1995	8.500%	2.000%	10.500%	$87.50	$10,000.00	Period
1996	8.250%	2.000%	10.250%	$85.42	$10,000.00
1997	8.250%	2.000%	10.250%	$85.42	$10,000.00
1998	8.500%	2.000%	10.500%	$87.50	$10,000.00
1999	7.750%	2.000%	9.750%	$81.25	$10,000.00
2000	8.500%	2.000%	10.500%	$87.50	$10,000.00
2001	9.000%	2.000%	11.000%	$91.67	$10,000.00
2002	4.750%	2.000%	6.750%	$56.25	$10,000.00
2003	4.250%	2.000%	6.250%	$52.08	$10,000.00
2004	4.270%	4.875%	9.145%	$127.46	$9358.54	Repayment
2005	4.290%	4.875%	9.145%	$127.46	$8655.89	Period
2006	4.356%	4.875%	9.145%	$127.46	$7043.15
2007	4.686%	4.875%	9.145%	$127.46	$6119.65
2008	4.440%	4.875%	9.145%	$127.46	$5108.07

13 Definitions: "We", "us", and "our" refer to the Savings Institute Bank and Trust Company. "You" and "your" refer to each person who signs the "agreement." The "agreement" is the document that creates the line of credit. The "mortgage deed" is the document, signed by those who own the home, which gives us the mortgage on your home. "Your home" refers to the dwelling securing the line without regard to who owns it or whether or not it is your principal dwelling.

SECTION III: Disclosure With Regard to Interest Rate for First Lien 1 Family Home Equity Loans and Home Equity Lines of Credit

You, each applicant, are applying for a first lien home equity loan or home equity line of credit from us for which the loan to value may exceed 80%. Pursuant to Connecticut law, we are required to tell you that if the loan to value exceeds 80%, we will charge a higher rate of interest than we charge for a loan to value of 80% or less.

SECTION IV: Notice To Home Equity Line Of Credit Applications About Our Appraisal Of Your Property, Your Right To a Lawyer, Our Policy On Interim Financing And the Absence Of a Rate Lock-In agreement

The words "you" and "your" refer to each and all persons who are applying for one of our Equity Loans or Home Equity Line of Credit Accounts. The words "we", "us" and "our" refer to the Savings Institute.

I. Appraisal Report
You have the right to a copy of the document(s) relied upon by us in evaluating the value of the residence (the "Appraisal Report") used in connection with your application for credit.

(a) Under federal law, you have a right to a copy of the Appraisal Report if you write to us at the mailing address set forth below; we must hear from you no later than 90 days after we notify you about the action taken on your credit application or you withdraw your application.

In your letter, give us the following information: your name, your address, the address of the property on which we have obtained the Appraisal Report, the approximate date of your application, and the type of loan for which you applied.

(b) We also wish to inform you that, under state law, or our own procedures, we will make the Appraisal Report available to you for inspection or we will mail a copy of it to you if you write to us or call us at 423-4581 and ask for your lending officer.

(c) Please do not rely on this appraisal report for any purpose of your own whatsoever. It was prepared for our internal purposes only and was not intended for you or anyone other than us to rely on.

II. Legal Representation
The law requires us to give you the following information:

You may have legal interests that differ from ours. We may not require you to be represented by the lawyer, if any, who represents us. You have a right to hire your own lawyer to represent you in this transaction. You may waive the right to be represented by a lawyer in this transaction. You may direct any complaints concerning violations of your rights listed in this Part II. to the Connecticut Department of Banking.

III. Our Policy on Interim Financing
We are required by law to tell you that we have a policy of only offering what is known as "interim financing" on a case by case basis at our discretion. "Interim financing" means short term loans, the proceeds of which are used to purchase a 1-4 family residence and which is due and payable when you sell your current residence.

Our Equity Loan and Home Equity Lines of Credit Accounts are not intended for use as interim financing. If you need interim financing please let us know, and we will provide you with more information on what types of interim financing products may be available from us, if any.

IV. Absence of a "Rate Lock-In" Agreement
A "Mortgage Rate Lock-In" is an agreement where we agree to give you a particular rate, number of points or specified variable rate terms, provided that you closed the loan within a specified period. None of the Equity Loan or Home Equity Line of Credit terms are locked-in (or guaranteed) for you until closing.