Is a HELOC Cash Crunch on the Way?

Filed under: Market Comentary

helocDuring the height of the real estate bubble of 2004-2007, may homeowners opened a HELOC (home equity line of credit). This was a popular way for homeowners to tap into their home equity to fund purchases, including home improvements and education expenses.

This revolving line of credit is based on the amount of equity in your home, which allows you to borrow what you need, when you need it.

A major issue is that three out of every five of these loans held by the biggest banks will require principal repayments, which started in 2014 and will continue through 2017. Experian, one of the three major credit-reporting agencies, estimates the typical payment on these loans will rise an average of 69%.

Unfortunately, many homeowners who took out HELOCs during this period now are facing a “cash crunch” as their loans enter this repayment phase.

When a homeowner’s HELOC enters the repayment phase, the homeowner is no longer allowed to borrow from the line of credit. In addition, the option to make interest-only payments ends. Depending on the loan terms you have, you will be required to pay back the principal along with interest by making regular monthly loan payments over the course of the repayment period or by making a lump sum or balloon payment.

This could immensely impact borrowers as homeowners could see a huge increase in their monthly payments. Due to this, industry experts are fearing that a rise in loan delinquencies could definitely occur. Another issue is that many HELOCs are associated with properties that are still underwater, which will leave homeowners who might want to refinance their HELOC with limited options.

So, what can you do if you are in this situation with a HELOC?

According to Dona DeZube of, you have the following options:

  • Pay the money if you can
  • Call your lender and ask to refinance
  • Call your lender and ask for advice and help
  • Shop for a new HELOC
  • Get a new first mortgage
  • Look into federal programs

Many lenders have already started contacting borrowers to make them aware of upcoming changes on their loans. If you have a HELOC and have questions about your loan, please feel free to contact me so we can discuss this potential problem.



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