Home equity lines of credit (HELOC) borrowers are about to collide with reality as the initial interest period expires for many of these loans. To date, many borrowers who took out the HELOC’s during the boom have made only the minimal payments, covering interest, but not reducing the principal balance of their loans.
Between 2014 & 2017, 60% of all HELOC’s will start requiring principal payments, according to the Office of Comptroller of the Currency.
Borrowers will find themselves in a tight place since many of the junior liens originated during the market boom and these loans were adjustable rate mortgages. The other problem is property values have went down since the origination of these HELOC’s and a majority of the loan modification programs leave second mortgages untouched and refinancing the loans under better terms is impossible for many borrowers.
My suggestion is to keep an eye on the market to see if the houses in your neighborhood have increased above the HELOC. If so, contact a lender to see if it is possible to re-finance your property.
If you have further questions, please e-mail me at PattyMcMillen@pacific.net.