Important Terms for Indiana Bank and Trust Company Home Equity Line of Credit

The following disclosure is being given to you in compliance with current law to explain this loan. This disclosure contains important information about our Indiana Bank and Trust Company Home Equity Lines of Credit. You should read it carefully and keep a copy for your records.

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

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.

Possible Actions: Under certain circumstances, we can (1) terminate your line, require you to pay us the entire outstanding balance in one payment, and charge you certain fees; (2) refuse to make additional extension of credit; and (3) reduce your credit limit. More specific information concerning when we can take these actions is found on the next page.

Minimum Payment Requirements: Your payments will be due monthly and will equal the finance charges that accrued on the outstanding balance during the preceding billing period. The minimum monthly payment will not reduce the principal balance unless the interest due is less than the minimum required payment. This account will mature on the 15th of the month following 20 years from the contract date. This is known as Maturity Date. At that time, you will be required to pay the entire Principal and Interest and other due in a single "balloon" payment. You may apply to refinance that balance with Indiana Bank and Trust Company.

Minimum Payment Example: Principal reductions are not required unless the interest due is less than the minimum required payment. If you had an initial advance of $10,000 and did not take any other advances, at 10.25% ANNUAL PERCENTAGE RATE, the interest and monthly payment would be $87.05 assuming a 31 day month. A balloon payment in the amount of $10,087.05 would be due on the maturity date.

Fees, Charges and Account Termination: To open and maintain a Home Equity Line of Credit you may pay an annual fee of $50.00 beginning at the time the account is opened. On the anniversary of your account opening each year thereafter, you will be charged $50.00. You also may pay certain fees to third parties to open a Indiana Bank and Trust Company Home Equity Line of Credit. These fees generally total between $0.00 and $500.00. Indiana Bank and Trust Company may elect to defer payment of these fees to originate your line of credit. If you ask, we will give you an itemization of the fees you will have to pay to third parties. If you fully repay and close your account within three years from the date of the agreement, Lender may charge your account a termination fee equal to 2% of any amount prepaid within sixty (60) days of the date of the prepayment in full, after deducting all the refunds and rebates as of the date of the prepayment. This penalty will not be imposed if:

• The line is refinanced or consolidated with Indiana Bank and Trust Company.
• The line is prepaid from proceeds from insurance or acceleration after default; or
• The line is prepaid after the passing of the third anniversary of the contract date.

A late charge will be imposed in the amount of the lesser of $16.50 or 5% of the payment due for payments received more than 15 days after the due date.

Minimum Draw: The minimum credit advance you can receive is $100.00. The Lender reserves the right to pay or not pay items below $100.00.

Tax Deductibility: You should consult your tax advisor regarding the deductibility of interest and charges for your Indiana Bank and Trust Company Home Equity Line of Credit.

Variable-Rate Information: Indiana Bank and Trust Company Home Equity Line of Credit has a variable rate feature, and the Annual Percentage Rate (corresponding to the periodic rate) and the minimum payment can change as a result. The Annual Percentage Rate corresponding to the periodic rate does not include any costs other than interest. The Annual Percentage Rate is based on the value of an index. The index used is the National Bank Prime Rate as published by the "Wall Street Journal" as of the last business day of each calendar month. To determine the Annual Percentage Rate that will apply to your Indiana Bank and Trust Company Home Equity Line of Credit, we add a margin to the value of the index. Ask us for the current index value, margin and Annual Percentage Rate. After you open a credit line, rate information will be provided on periodic statements that we will send you.

Rate Changes: The Annual Percentage Rate can change once monthly on the 1st of each calendar month. The maximum Annual Percentage Rate that can apply is 21%. Except for this 21% "cap," and a 3% "floor," there is no limit on the amount by which the rate can change each month. The Annual Percentage Rate will be based on the index value on the last business day or the last Friday of each month if the last business day is a Saturday.

Default: You will be in default upon your failure to abide by any of the terms of your Indiana Bank and Trust Company Home Equity Line of Credit Agreement and any documentation executed to provide Lender security for your account.

Events of Default: In addition, the Lender may terminate the plan and accelerate the balance if any of the following circumstances occur:

1. There has been fraud of material misrepresentation by you in connection with this Account.
2. You fail to make scheduled payments within 30 days of the scheduled due date.
3. Your actions or inactions have adversely affected the Lender's security interest in the Account.
4. You transfer title to the real estate which secures this account or sell the real estate without permission of the Lender.
5. You fail to maintain the required insurance on the real estate AND ANY IMPROVEMENTS THEREON.
6. You fail to pay taxes on the real estate within 30 days after their scheduled due date.
7. Some other action causes a lien senior to that held by the Lender to be placed on the real estate.
8. Your death.
9. The real estate is taken through eminent domain.
10. Foreclosure by a lien holder.
11. Any other circumstances which adversely affect the Lender's security.

IN THE EVENT OF DEFAULT, BORROWER AGREES THAT THE LENDER MAY, WITHOUT NOTICE AND WHERE APPLICABLE LAW ALLOWS, INCREASE THE ANNUAL PERCENTAGE RATE TO THE HIGHEST RATE ALLOWED BY LAW.

Maximum Rate and Payment Examples: If you had an outstanding balance of $10,000, the minimum monthly payment at the maximum Annual Percentage Rate of 21% would be $178.36 assuming the month had 31 days. This Annual Percentage Rate can be reached during the second month your account is open.

Hazard Insurance: Borrower shall keep the improvements now existing or hereafter erected on the property insured against loss of fire, hazards included within the term "extended coverage," and such other hazards the Lender may require or as may be required by applicable law (including flood insurance) and in such amounts and for such periods as Lender may require.

Historical Example: The following table shows how the Annual Percentage Rate and the minimum monthly payment for a single $10,000 credit advance would have changed based on changes in the index over the past 15 years. The index values are from July of each year. While only one payment amount per year is shown, payments would have varied during each year. The table assumes that no additional credit advances were taken, that only the minimum payments were made each month, and that the rate remained constant during each year. It does not necessarily indicate how the index or your payments will change in the future.

Year	Index (%)	Margin* (%)	Annual Percentage Rate (%)	Interest Only Minimum Payment ($)
1995	8.75	2.00	10.75	91.30
1996	8.25	2.00	10.25	87.05
1997	8.50	2.00	10.50	89.18
1998	8.50	2.00	10.50	89.18
1999	8.00	2.00	10.00	84.93
2000	9.00	2.00	11.00	93.42
2001	6.75	2.00	8.75	74.32
2002	4.75	2.00	6.75	57.33
2003	4.00	2.00	6.00	50.96
2004	4.25	2.00	6.25	53.08
2005	6.00	2.00	8.00	67.95
2006	8.25	2.00	10.25	87.05
2007	8.25	2.00	10.25	87.05
2008	5.00	2.00	7.00	59.45
2009	3.25	2.00	5.25	44.59

*This is a margin we have used recently. Ask us about our current terms.

I (we) acknowledge receipt of a copy of this Important Terms for Indiana Bank and Trust Company Home Equity Lines of Credit and a copy of the Home Equity Brochure entitled "When Your Home is on the Line: What You Should Know About Home Equity Lines of Credit" published by the Federal Reserve Board.

Federal Reserve Board
Consumer Handbook
What You Should Know About Home Equity Lines of Credit

If you are in the market for credit, a home equity plan is one of several options that might be right for you. Before making a decision, however, you should weigh carefully the costs of a home equity against the benefits. Shop for the credit terms that best meet your borrowing needs without posing undue financial risks. And remember, failure to repay the amounts you've borrowed, plus interest, could mean the loss of your home.

What is a home equity line of credit?
What should you look for when shopping for a plan?
Costs of establishing and maintaining a home equity line.
How will you repay your home equity plan?
Lines of credit vs. traditional second mortgage loans.
What if the lender freezes or reduces your line of credit?

What is a home equity line of credit?

A home equity line of credit 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. Many lenders set the credit limit on the home equity line by taking a percentage (say, 75%) of the home's appraised value and subtracting from that the balance owed on the existing mortgage. For example:

In determining your actual credit limit, the lender will also consider your ability to repay the loan (principal and interest) by looking at your income, debts, and other financial obligations as well as your credit history.

Many home equity plans set a fixed period during which you may borrow money, such as 10 years. At the end of this "draw period," you may be allowed to renew the credit line. If your plan 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 allow repayment over a fixed period (the "repayment period"), for example, 10 years.

Once approved for a home equity line of credit, you will most likely be able to borrow up to your credit limit whenever you want. Typically, you will use special checks to draw on your line. Under some plans, borrowers can use a credit card or other means to draw on the line.

There may be other limitations on how you use the line. Some plans require you to borrow a minimum amount each time you draw on the line (for example, $300) or keep the minimum amount outstanding. Some plans may also require that you take an initial advance when the line is set up.

What should you look for when shopping for a plan?

If you decide to apply for a home equity line of credit, look for the plan that best meets your particular needs. Read the credit agreement carefully, and examine the terms and conditions of various plans, including the annual percentage rate (APR) and the costs of establishing the plan. Remember, though, that the APR for a home equity line is based on the interest rate alone and will reflect closing costs and other fees and charges, so you'll need to compare these costs, as well as the APRs, among lenders.

Variable interest rates

Home equity lines of credit typically involve variable rather than fixed interest rates. The 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). In such cases, the interest rate you pay for the line of credit will change, mirroring the changes in the value of the index. Most lenders cite the interest rate you will pay as the value of the index at a particular time, plus a "margin," such as 2 percentage points. Because the cost of borrowing is tied directly to the value of the index, it is important to find out which index is used, how often the value of the index changes, and how high it has risen in the past. It is also important to note the amount of the margin.

Lenders sometimes offer a temporarily discounted interest rate for home equity lines-an "introductory" rate that is unusually low for a short period, such as 6 months.

Variable-rate plans secured by a dwelling must, by law, have a ceiling (or cap) on how much your interest rate may increase over the life of the plan. Some variable-rate plans limit how much your payment may increase and how low your interest rate may fall if the index drops.

Some lenders allow you to convert from a variable interest rate to a fixed rate during the life of the plan, or let you convert all or a portion of your line to a fixed-term installment loan.

Costs of establishing and maintaining a home equity line

Many of the costs of 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 to estimate the value of your home;
• An application fee, which may not be refunded if you are turned down for credit;
• Up-front charges, such as one or more "points" (one point equals 1 percent of the credit limit); and
• Closing costs, including fees for attorneys, title search, mortgage preparation and filing, property and title insurance, and taxes.

In addition, you may be subject to certain fees during the plan period, such as annual membership or maintenance fees and a transaction fee every time you draw on the credit line.

You could find yourself paying hundreds of dollars to establish the plan. And if you were to draw only a small amount against your credit line, those initial charges would substantially increase the cost of the funds borrowed. On the other hand, because the lender's risk is lower than for other forms of credit, as your home serves as collateral, annual percentage rates for home equity lines are generally lower than rates for other types of credit. The interest you save could offset the costs of establishing and maintaining the line. Moreover, some lenders waive some or all of the closing costs.

How will you repay your home equity plan?

Before entering into a plan, consider how you will pay back the money you borrow. Some plans set a minimum monthly payment that includes a portion of the principal (the amount you borrow) plus accrued interest. But, unlike the typical installment loan agreements, the portion of your payment that goes toward principal may not be enough to repay the principal by the end of the term. Other plans may allow payment of interest only during the life of the plan, which means that you pay nothing toward the principal. If you borrow $10,000, you will owe that amount when the payment plan ends.

Regardless of the minimum required payment on your home equity line, you may choose to pay more, and many lenders offer a choice of payment options. Many consumers 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.

If you plan has a variable interest rate, your monthly payments may change. Assume, for example, that you borrow $10,000 under a plan that calls for interest-only payments. A 10% interest rate, your monthly payments would be $83. If the rate rises over time to 15%, your monthly payments will increase to $125. Similarly, if you are making payments that cover interest plus some portion of the principal, your monthly payments may increase, unless your agreement calls for keeping payments the same throughout the plan period.

If you sell your home, you will probably be required to pay off your home equity line in full immediately. If you are likely to sell your home in the near future, consider whether it makes sense to pay the up-front costs of setting up the line of credit. Also keep in mind that renting your home may be prohibited under the terms of your agreement.

Lines of credit vs. traditional second mortgage loans

If you are thinking about a home equity line of credit, you might also want to consider a traditional second mortgage loan. This type of loan provides you with a fixed amount of money, repayable over a fixed period. In most cases, the payment schedule calls for equal payments that pay off the entire loan with the loan period. You might consider a second mortgage instead of a home equity line if, for example, you need a set amount for a specific purpose, such as an addition on your home.

In deciding which type of loan best suits your needs, consider the costs under the two alternatives. Look at both the APR and other charges. Do not, however, simply compare the APRs, because the APRs on the two types of loans are figured differently:

• The APR for a traditional second mortgage loan takes into account the interest rate charged plus points and other finance charges.
• The APR for a home equity line of credit is based on the periodic interest rate alone. It does not include points or other charges.

Disclosures from lenders

The federal 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 (other than a variable-rate feature) changes before the plan is opened, the lender must return all fees if you decide not to enter into the plan because of the change.

When you open a home equity line, the transaction puts your home at risk. If the home involved is your principal dwelling, the Truth in Lending Act gives you 3 days from the day the account was opened to cancel the credit line. This right allows you to change your mind for any reason. You simply inform the lender in writing within the 3-day period. The lender must then cancel its security interest in your home and return all fees-including any application and appraisal fees-paid to open the account.

What if the lender freezes or reduces your line of credit?

Plans generally permit lenders to freeze or reduce a credit line if the value of the home "declines significantly" or, when the lender "reasonably believes" that you will be unable to make your payments due to a "material change" in your financial circumstances. If this happens, you may want to:

• Talk with your lender. Find out what caused the lender to freeze or reduce your credit line and what, if anything, you can do to restore it. You may be able to provide additional information to restore your line, such as documentation showing that your house has retained its value or that there has not been a "material change" in your financial circumstances. You may want to get copies of your credit reports (go to the Federal Trade Commission's website for information about free copies) to make sure all the information in them is correct. If your lender suggests getting a new appraisal, be sure you discuss appraisal firms in advance so that you know they will accept the new appraisal as valid.
• Shop around for another line of credit. If your lender does not want to restore your line of credit, shop around to see what other lenders have to offer. You may be able to pay off your original line of credit and take another one. Keep in mind, however, that you may need to pay some of the same application fees you paid for your original line of credit.