Consumer complaint received 2018-02-07 00:00:00
Product: Mortgage — Home equity loan or line of credit (HELOC)
Issue: Trouble during payment process — 
Company: PENTAGON FEDERAL CREDIT UNION
State: CA

Complaint narrative:
I opened up a HELOC with Pentagon Federal Credit Union on XX/XX/XXXX. I switched from my previous bank because the rates were lower ( prime +0 ). At that time and over the life of the loan, the rate was about 4.5 % which was lower than what I was getting at my previous bank. They told me it was fully amortized loan, which I didn't have a problem with, because I knew it would pay down the loan and the rate was low. I was told the draw period was 15 years and payback was 15. 

So I had set up automatic deposit from my checking account and I didn't think too much about it. Then I did a large withdraw about {$50000.00} to conduct some home remodel work. I noticed that the payments were kind of high and could not quite figure out why. They were significantly higher than my old loan and I figured it was due to it being fully amortized. I finally called the XXXX, and they could not explain. For example on XX/XX/XXXX XXXX did an ACH transfer of XXXX on a loan amount of XXXX. 

I could not understand why the payment was so high. If the rate was 4.5 % fully amortized then the payment should have been {$330.00}, not {$1200.00}. At that time I was making withdraws as well, so it was difficult to understand what was happening. 

Later in the year I wasn't withdrawing from the HELOC but the payments were still high. So for example, on XX/XX/XXXX, the ACH for my payment was $ XXXX on a loan amount of {$61000.00}. If I run the calculation, {$680.00} is what I would have expected to pay, when I calculate 4.5 % fully amortized, loan, 15 year term for {$61000.00}. 

I was puzzled, so I contacted XXXX again, and finally found someone to explain this. Apparently there is a term that payment is based on the amount of the loan, times the interest rate, OR 1.5 % of the outstanding loan amount, whichever is HIGHER. 

So essentially, the monthly loan payment will ALWAYS be 1.5 % of the loan amount, UNTIL SUCH TIME THAT THE INTEREST RATE CHARGED GOES ABOVE 1.5 % x 12 ( monthly payments ), or 18 %, at which time, the interest rate would the same annual rate as the payment percent method. 

I feel very strongly that this is a deceptive loan. If you look at the XXXX site, they tout the low interest rate all over the place, but NOWHERE do they disclose the 1.5 % payment terms of the loan ... only in the loan document. Everyone, including myself, shop loan based on the interest rate. 

I appreciate their motivation to keep people from defaulting, but 1.5 % payment per month equates to 66.66 months to payoff the entire loan BUT the loan term is a total of 30 years, so there is 15 years to pay it off ( 15 years draw, 15 years payback ). But because of the 1.5 % payment rule, I can not receive the value of having a 15 year pay off period ... until such time that the interest rate goes above 18 %. While this is possible, even in the worst inflationary period during XX/XX/XXXX, the average rate was 17 %. So the whole scenario they are working under is EXTREMELY UNLIKELY. 

Bottom line, I feel I was tricked into this loan, and I am receiving less value that what was represented. I do not have the financial flexibility that I thought this loan would offer. I feel very strongly that they should have advertised the payment term, because in almost all situations, you will be paying 1.5 % per month. 

I am not a financial person, but I try to educate myself on these matters, but in this case, they buried this term and used it against me.

Company public response: Company has responded to the consumer and the CFPB and chooses not to provide a public response
Company response to consumer: Closed with explanation