Lenders have been freezing or cancelling home equity lines of credit (HELOC) for homeowners recently. This has been in response to declining property values. This can really be hurtful to a homeowner who has been using and depending upon their HELOC. What can be done?
Well, a slowdown in consumer spending is not going to help our economy at this juncture, that is for sure. Homeowners in debt, investors who buy and sell or build spec homes, parents with children in college, the list goes on and on, but everyone will be affected.
I know being told by your bank that your HELOC has been cut off comes as a shock. Many consumers needed access to what remained on their credit line. They have lost their “cushion". What is they just got downsized and lost their employment and were using that HELOC money to pay their health insurance COBRA benefits every month until they can find work again? Their only recourse now may be to utilize their credit cards, and that carries high interest and will ultimately push them farther into a “hole" financially. Credit card, as consumer debt, is interest paid out that cannot be deducted for income tax purposes.
A study by the National Association of Securities Dealers has revealed that many people take HELOC's to invest in the equity and bond markets, there are certainly a lot of opportunities there right now. Closing people's HELOC lines will have an impact on the financial markets now.
Now that property values are down, it is a buyers’ market and an excellent buying opportunity indeed. Many people planned on using HELOC funds for the down payment on investment properties or a second home or vacation cabin.
Well, here are some suggestion:
First, get a new appraisal done on your home. Find out where you stand with regard to Loan To Value (LTV) because that is the figure that is going to be looked at by the lender. Generally do not count on being able to take cash out of your home's equity if your LTV is greater than 80%. Your current mortgage(s) balance(s) divided by current home value = LTV.
If your LTV is less than 80%, consider visiting your lender with specific plans for how you wanted to utilize the HELOC funds and your new property appraisal in hand. Lenders are in business to lend and individual situations will certainly be considered. Obviously it helps if you have good credit and have not missed/been late on any mortgage payments!
It may be possible, if you wanted to buy a second property, to set up a new HELOC that is liened to both properties, to give the lender more assurance.
As always, consult a good mortgage broker for guidance and suggestions.
James Hussher is a Certified Mortgage Planner and licensed in all 50 states. Please visit James at http://ezmortgages123.com for all of your residential and commercial mortgage needs. Apply online, check current offered rates and loan programs and more! Many free articles and educational resources may be accessed at http://swifthussherrealestate.com which James also runs!