Do you have a home equity line of credit on your home? If you do and it was originated prior to 2007, you could be subjected to a HELOC loan reset in the near term.
What does this mean?
HELOC loans were typically originated as 10-year, interest-only loans that switch to fully amortizing loans after a decade. At the end of the interest-only period, borrowers would experience a payment shock as they may have to pay back both interest and principal. Or worse, if your HELOC has a balloon payment feature, you could be responsible for paying the entire outstanding balance back.
To examine the issue, Corelogic analyzed the 10-year reset performance of 1.8 million HELOC originations between 2001 and 2004 using the CoreLogic TrueStandings Home Equity Database. The 2003 and 2004 vintages had an average pre-reset monthly payment of $105 dollars, and after the reset, the monthly payment jumped to $229, an increase of $124 or 119%.
If you have a HELOC which is scheduled to reset there are a few things which may be relevant to consider:
1.) If you have equity in your home, you may refinance both your first mortgage and your HELOC. I would recommend looking at a shorter term mortgage like a 15 year fixed rate if it makes financial sense.
2.) Read the terms of your reset. Be prepared. It may be a low balance, you may have an existing low fixed mortgage rate, and it may not be a big deal.
3.) Pay it off.
Of course, there are always more ways to evaluate based on your specific situation. Contact me to go over your scenario, as I am happy to help you evaluate your particular HELOC terms.
Until Next Time,
Craig Turley
