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Questions and Answers about HELOC
- What is the difference between simple interest and amortized interest?
- How is my interest due calculated on my EquityLine?
- How is a payment applied?
- When is my payment determined?
- Is there a prepayment penalty on my EquityLine?
- I have automatic payments from one of my UNFCU accounts to my EquityLine. Why didn’t my payment come out of my account this month?
- How often does my interest rate change?
- When can late fees be assessed to my account?
- Can I request a fixed monthly payment on my EquityLine?
1. What is the difference between simple interest and amortized interest?
Simple interest is calculated on a daily basis. Any payment will effect this calculation. Amortized interest is calculated monthly. It is computed in advance based on the balance and rate of your loan on the first of the month. The calculation of the interest due for an EquityLine is based on a simple interest calculation and a first mortgage is an amortized loan.
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2. How is my interest due calculated on my EquityLine?
The interest is calculated by multiplying the outstanding loan amount by the interest rate then dividing the total by 365 days. The amount is then multiplied by the number of days between payments. The annual interest rate is divided by 365 days in order to convert the rate into a daily rate. The chart below depicts two different scenarios indicating the interest due if the payment was made on the first or the fifteenth. For example if your loan balance is $35,000.00 and your interest rate is 7.95% and you made your last payment on August 1st and it is now September 1st you would use the following formula:
Example: $35,000.00 X 7.9% / 365 X 30days= $227.26. This is the amount of interest due.
|
Loan Balance as of 1 Aug 06 |
Payment Due |
Payment Date |
# of Days |
Payment amount |
Interest |
Principal |
| Scenario 1: |
$35,000.00 |
1-Sept-06 |
1-Sep-06 |
30 |
$350.00 |
$227.26 |
$122.74 |
| Scenario 2: |
$35,000.00 |
1-Sept-06 |
15-Sep-06 |
45 |
$350.00 |
$340.89 |
$9.11 |
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3. How is a payment applied?
When a payment is received it is first applied to any interest due as of the day of payment . Any amount that is left over is applied to reduce the principal balance or late charges if applicable.
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4. When is my payment determined?
Your EquityLine cycles on the first day of every month. At that time the payment for the following month, which is due on the first, is calculated. The payment is determined by using the current interest rate, current balance and the due date of the first of the following month.
If your payment is received after the first of the month, additional interest will be due on your account. The later your payment is received each month the more interest will be due . In some cases the payment you make after the first of the month may not be enough to cover the interest due on your EquityLine.
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5. Is there a prepayment penalty on my EquityLine?
No, there is no prepayment penalty on this account. You can make extra payments at any time. Be aware that any interest due at the time you make a payment will be deducted first and the balance of the payment will be applied to your principal balance.
Furthermore, you can make a principal payment at any time, however the amount you specify to go to principal will not be solely applied to the principal balance unless all the interest due has been satisfied.
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6. I have automatic payments from one of my UNFCU accounts to my EquityLine. Why didn’t my payment come out of my account this month?
Making an additional payment during the previous month would satisfy your next payment due and therefore an automatic payment would not be made on your account. When you make this extra payment it will advance your due date on your EquityLine. No automatic payment will be taken the first of the following month. If you want a payment applied you can make a payment online, by audio response, by mailing in a cheque or going to one of our branches. Remember interest is accruing daily and it is suggested that you make a payment each month as the interest due is calculated from the last payment received to the next payment received.
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7. How often does my interest rate change?
During the first year your interest rate is fixed upon closing. Your closing documents indicate the first month your interest rate may change. After that your interest rate may change quarterly.
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8. When can late fees be assessed to my account?
Based upon the disclosure provided at closing, late fees can be assessed 15 days after your payment due date at the rate of 2% of the payment amount.
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9. Can I request a fixed monthly payment on my EquityLine?
Since an EquityLine is a revolving account that has a variable interest rate a fixed payment amount can not be setup on this account. Payments will change when an advance is taken or the interest rate changes.
It is advised that any additional payments be made at the same time the regular monthly payment is applied.
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