Is Your Home Equity Line of Credit Safe?
Many lenders are freezing home equity lines of credit, or HELOCs, even those that remain unused. Declining home values and an uncertain economic outlook are making financial institutions tighten their purse strings.
In fact, about 79% of banks surveyed recently by the Federal Reserve are tightening lending standards on HELOCs. If you still have money available in a line of credit but home prices in your area have declined, your lender may be ready to pull the plug on your HELOC.
So what's a homeowner to do? Drain the remaining balance on your line of credit and start paying interest right away or potentially lose access to your funds altogether? Before rushing off to withdraw the money from your line of credit, consider whether that approach makes the most financial sense for you.
Evaluate your riskA bank can freeze an existing HELOC if the amount of equity remaining in the home, as measured by the difference between the credit limit and the home's value, declines by half. Say you own a $200,000 home with a $100,000 mortgage and a $50,000 HELOC. That leaves $50,000 in equity in the home. A drop in home value to $175,000 would leave only $25,000 in available equity, a 50% decline. Your lender would have grounds to freeze your HELOC. You're at greater risk if you recently bought a house with little or no money down, or if your neighborhood has experienced double-digit declines in home values. Call your lender and ask what its loan-to-value standards are for new HELOCs. If you are above the new limit, you may be at risk.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV