HELOC borrowers beware! If you purchased a home a decade ago, the period when lenders had pretty lenient standards, and you happened to take advantage of the home-equity line of credit (HELOC), you may want to check the terms of your loan. The reason we suggest this is that a lot of HELOC borrowers are about to experience the inevitable reset.
The HELOC is a lot like a credit card. Borrowers don’t receive the full amount of money; rather they have a line of credit with a set limit. Many HELOCs allow borrowers to make interest only payments for ten years. After that period, the HELOC resets, meaning the interest rate, as well as the monthly payment, can skyrocket, sometimes doubling or tripling. So, if you took advantage of a HELOC during the real estate boom and intended to make interest only payments for ten years, that ten year period just may be about to expire.
Unfortunately, the massive reset may have broader economic implications. For one thing, HELOC borrowers with new, increased HELOC payments will experience a reduction in their discretionary income. In addition to negatively affecting consumer spending, this could also hinder the current real estate recovery. Over the last few years, many of the previously damaged markets, including Miami’s real estate market, have witnessed substantial progress. The higher HELOC payments may lead to more defaults, which, in turn, may mean more short sales and foreclosures, just when markets were making headway clearing such distressed properties.
If you’re a property owner with equity in your home, you should certainly research refinancing options. Alternatively, if you intend to remain in your current home and you have any additional money, you could consider making a sizable payment. Reducing the overall amount owed will help prevent the monthly payment from increasing too much. Borrowers hoping to sell their property can contact us to conduct a comparative market analysis to help determine possible courses of action.