Find Out if Your HELOC is Coming Due, and How to Take Action

You may be wondering, what is a HELOC?  A HELOC is a revolving line of credit based on the amount of equity in your home.  With a HELOC, you can borrow up to the maximum allowed, when you need it, while making interest-only payments.  You also may be able to deduct this interest on your tax return. Sounds great, doesn’t it?

Home Equity/Lines of Credit

Let’s take a flashback to the period of 2005 – 2008.  Many individuals were reaping the benefits of their home’s rapidly rising equity by obtaining Home Equity Loans/Lines of Credit (HELOC).  This was a popular way for many homeowners to fund home improvement projects or even pay for their childrens’ education expenses.

Move forward to now, 2015.  Many of the HELOC’s that were issued between 2005 – 2008 were typically issued with a 10-year borrowing period and will be entering the repayment period.  Once a HELOC enters the repayment period, you can no longer borrow from the line of credit, and your option to make interest-only payments ends.  Depending on the loan terms, you will be required to pay back the principal along with interest through monthly loan payments over the course of the repayment period or by making a lump-sum payment.

Industry experts are expecting a spike in loan delinquencies as nearly $265 billion in HELOC’s will enter the repayment period in the next few years.

If you currently have a HELOC, what should you do?  You should be sure to review the loan documents and find out what the terms of your HELOC are, as well as what your new payment amount will be during the repayment period.  Additionally, if you have enough equity in your home, you may be able to refinance your HELOC and your mortgage into one loan.  Of course, this only makes sense if the interest rates today are better than your existing mortgage and HELOC rates.  With the current low rates, you may want to act soon if you have a HELOC coming due.  If you have additional questions regarding your HELOC, please reach out to an Anders advisor.