Reading a home equity line statement, one section at a time

The account summary at the top

The first block of a statement is a summary. It usually lists the balance at the start of the cycle, the draws you made, the payments the lender received, the interest charged and the balance at the end. Read it as a short story of the month: where you began, what went in, what came out and where you finished.

The ending balance is what you owe on the line today. It is not the same as the amount due. The amount due is the slice of that balance the agreement asks you to pay this month, and on many lines it is far smaller.

The summary also shows your credit limit and the credit still available. The available figure is the limit minus the balance, less any amount the lender is holding back for draws that have not settled yet.

How the rate for this cycle is shown

Most lines carry a variable rate. That means the rate is built from two parts. The first is an index, a published benchmark the lender does not control. The second is the margin, a fixed amount the lender adds on top. The statement often prints both, along with the rate that applied during the cycle.

If the index moved during the month, you may see two rates, each with the dates it applied. That is normal. Compare this month's figure with last month's so a change does not pass unnoticed.

What to look for: the index name, the margin, the rate for the cycle, and the date of the next possible change. If any of these is missing, the agreement or the lender can supply it.

How the interest figure is counted

On a typical line, interest is worked out on the average daily balance. The lender adds up the balance at the end of each day in the cycle, divides by the number of days and applies a daily share of the yearly rate.

Two things follow from that method. First, a draw made early in the cycle costs more interest than the same draw made near the end. Second, a payment made early in the cycle lowers the charge for every day that follows.

Here is an illustration with round numbers, not an offer or a rate anyone is quoting. A balance of 20,000 dollars held for a full 30-day cycle at a yearly rate of 9 percent comes to roughly 148 dollars of interest. If the same 20,000 dollars had been drawn on day 16, the charge for that cycle would be about half of that.

What the minimum payment covers

During the draw period, many agreements set the minimum payment at the interest for the cycle, sometimes with a small slice of principal. Principal is the money you actually borrowed, as opposed to the cost of borrowing it.

When the minimum is interest only, paying it keeps the account current but leaves the balance unchanged. Some statements show this plainly with a line for principal paid. If that line reads zero month after month, the balance will be the same when the draw period ends as it is now.

• Find the split between interest and principal in the payment section.
• Check whether the statement shows what an extra principal payment would do.
• Note the payment due date and the date a late fee would apply.

The transaction list

Below the summary sits a list of every draw, payment, fee and adjustment in the cycle, each with a date. This is the place to catch mistakes. Match each draw against your own records, whether it was a transfer, a check written on the line or a card purchase where the line allows one.

Fees appear here too. A yearly fee, a fee for a returned payment or a charge for an inactive line can each turn up with little warning. If a fee is unfamiliar, the agreement names every fee the lender may charge and when.

A disputed item is handled under the lender's own process, and the statement normally prints how and where to raise one. Raise it in writing and keep a copy.

The dates that matter

A statement carries several dates, and each has its own job. The closing date ends the cycle. The due date is when the payment must arrive. Further down, many lenders print the date the draw period ends.

That last date deserves the most attention. When the draw period ends, you can no longer take new money from the line, and the agreement usually switches to a repayment period. The payment then covers principal as well as interest, and it can rise sharply, especially if the balance has not come down.

A simple habit. Once a year, write down the balance, the rate and the months left in the draw period. Seeing those three numbers side by side shows whether the line is on the path you planned.

Notices printed on the back

The back of a statement, or a final page, often holds notices. Some repeat standing terms. Others announce changes: a new fee, a revised minimum payment rule, or a change to the credit limit.

A lender can, under the terms of many agreements, reduce or freeze a line if the value of the home falls or if it judges the account riskier than before. A notice of that kind usually arrives in writing and may first appear on a statement. Read every notice, even when the front of the page looks routine.

Questions to put to the lender

If something on the statement is unclear, the lender's customer service team can explain it. A short list helps keep the call focused.

1. Which index does my rate follow, and how often can it change?
2. How is my interest counted, and on which balance?
3. How much of my last payment went to principal?
4. When exactly does my draw period end, and what will the payment look like after that?
5. Which fees can appear on this account, and what triggers each?

Rules vary by state, and your own agreement sets the terms that apply. These pages describe common practice in general terms only.

Why we wrote this. Willowdale Bureau put this guide together for homeowners who already have a line of credit and want to understand the statement that arrives each month. We do not lend money and nothing on this page is an offer. Your own agreement and your lender set the terms that apply to you.