HELOCS are such a great way to utilize the equity in one’s home! The borrower has control over what amount and when to use the available line. Payments are usually quite manageable because they are interest only. No wonder these instruments are so popular!
However as is true in so many aspects of life, financial and otherwise, there are hidden risks that often don’t meet the eye. Most HELOCS have a “reset” point, usually 10 or 15 years after it is established. At that point the borrower can no longer utilize the line and must begin paying Principal and Interest. This usually comes as an unpleasant shock to say the least.
Consider this letter – click here! – that a Wells Fargo HELOC customer got about a month ago. Tens of thousands of these are going out from lenders nationwide:
When these elderly borrowers called to see what their new payment would be, they were quite dismayed to find that it is rising by over $400 monthly. How does that affect one’s lifestyle on a fixed income?
Even without a reset the terms of a HELOC can have a very negative affect on borrowers. These are great loans and they help a lot of people. The loan officers I know are careful to point out all of the features and terms. For instance, since the housing crash of 2007-2008, lenders are quite concerned about their LTV position. If property values decline again they don’t want to be left holding the proverbial bag (again!). HELOCS today almost invariably have cutoff clauses that restrict draws if the property value has declined to a certain point. Some HELOCS have outright call provisions requiring a full payoff under certain conditions.
So I urge you to explore the terms of your clients’ HELOCS and check out yours as well! Look for the Hidden Horrors that may be lurking. You will do folks a great service that they will remember if you alert them to these dangers and avoid a painful event.
You may be able to guide them to a happy resolution! If they are 62 or over please consider bringing me in to create a line of credit that grows in available funds guaranteed by the United States and can never be restricted or called no matter what happens to the home value (or anything else for that matter!)
As always, we add a final note for Realtors and Builders: Get involved in the most exciting purchase tool for your clients that you have ever encountered! That’s not an exaggeration. Realtors please download the Buyers Guide under the Reverse for Purchase tab on www.reversemortgagewithbob.com then call me.
Builders of 55-plus communities, let me show you how we are increasing sales for many communities by 30% while increasing the profit per sale dramatically. That’ not an exaggeration either. Take a look at the Builders Blueprint under the Reverse for Purchase tab at www.reversemortgagewithbob.com then call me. The numbers I can show you don’t lie!