LAKE HAVASU CITY–According to the credit reporting agency Experian, millions of property owners who took out home equality lines of credit (HELOCs) in 2005 are about to be surprised when they receive their next mortgage statement.
A report released by the major credit reporting company shows that overall homeowners will be pay an additional $265 billion this year when their HELOCs enter the reimbursement stage.
“Homeowners opened these lines of credit during stable financial times with the assumption that properties would continue to rise,” Supervisor Johnson stated. “Unfortunately, the housing market crashed a couple years after many received their home equality lines and today many homeowners are still facing financial difficulties,” Johnson continued.
HELOCs are when homeowners draw a line of credit on their existing mortgage. “Historically HELOCs were used to make repairs to a property in order to restore or raise the value,” Johnson explained.
According to the Experian report, many individuals who took out these lines of credit from 2005-2008 took out the maximum line of credit they could and never paid down any of it during the ten-year draw period.
“These lines of credit are basically broken down into two periods, the draw and the repayment. During the draw period, homeowners can draw off the line of credit but are only required to make the minimum, no-interest free payment,” Johnson stated. During the repayment period, Experian predicts the payment on these loans to triple or even quadruple for those who have continued to make just the bare minimum payment over the past ten years.
For homeowners about to face the reality of repayment, there are some options available. For homeowners with good credit, refinancing and renegotiating the terms of the loan with the bank is always an option.
“During these hard economic times, many folks do not have the credit to refinance these loans; however, if homeowners contact their bank early enough there may be some assistance they can give them,” Johnson suggested.
While refinancing may be an option for some, for many whose property values have not recovered since the financial crash this option may not be available.
According to Experian, many who took out the HELOCs ten years ago did so to improve on the value of their house and in today’s housing market property values are still lower than they were in 2005.
For homeowners who took out a $100,000 HELOC in 2005 with a 3.75% interest rate, their monthly payment could rise by around $400 a month. “During these difficult times, homeowners may have a hard time adding an additional $400 to their budget. If all these HELOCs are coming due now, this could put a damper on our economy and slow down the financial recover process for many Americans,” Johnson continued.