The majority of Home Equity Lines of Credit (HELOC) in America were originated at the peak of the home equity boom between 2004 and 2008. Since most HELOC’s have a ten-year draw period, there’s concern over the potential wave of defaults coming when the estimated $190 billion in HELOC loans reset between 2017 and 2018.
A Home Equity Lines of Credit is a revolving loan that’s secured by the equity in your home. It allows you to borrow money and pay it back over and over, in a fashion similar to how a credit card or checking account overdraft works. You can borrow and pay the minimum interest each month, or pay principal as well. As the principal balance is paid down, that amount becomes available to borrow again.
Problems arise when homeowners borrow significant sums from their HELOCs and get lulled into paying the minimum interest-only payments. When the revolving period ends (typically after ten years), these loans are “reset” to fixed principal and interest payments amortized over the following ten to twenty years. This of course, results in a significant increase in the required payment (payment shock), which homeowners often find unmanageable.
The fear is these resets may cause a wave of defaults that impacting home values, potential foreclosures, bank balance sheets, and the mortgage/real estate markets in general. Adding to these concerns is the fact that nearly 50% of all HELOCs are located in California, Florida, and New York.
If you’re a homeowner with a HELOC,
what should you do to avoid any future risk?
Contact my office at least six months before your HELOC is due to mature. We will analyze your current HELOC and payments, show you what your payments will look like after the reset, and if necessary, help you restructure your debt payments to ensure they remain well within your budget.
At Mortgage Wealth Advisors, you’ll receive accurate information, valuable advice, and a concierge experience. We’ll ensure your mortgage matches your needs, complements your financial plans, and helps you attain your financial goals.
Warren Goldberg is President of Mortgage Wealth Advisors, a Certified Mortgage Planning Specialist®, and a published author. His interviews include Blog-Talk Radio, Newsday, The Daily News, Anton Press, and the Long Island Herald. Since 1992, he’s been sharing his financial knowledge and wealth-building strategies, including how to properly use your mortgage as a financial tool. His clients regularly express their trust and appreciation by recommending friends and family call when in need of mortgage, real estate, and financial guidance.