Have a HELOC Coming Due?
Dust Off Your Original Paperwork
Flashback to the year 2005 ...
At that time, it had become popular in financing to capitalize on a home's rapidly rising equity.
This was easily accomplished at almost any bank. Sometimes you could even tap as much as 100% of the home's appraised value.
Consider this typical 2005 scenario:
Home Value: $250,000.00
1st Mortgage Balance: $150,000.00
Equity Available: $100,000.00
Many banks at that time maintained what's called "the 80/20 Rule" and did not lend above 80% of the home's (then) current value. In the scenario above, that amount would have been $200,000 ... (80% of $250,000).
Using the 80/20 Rule, the amount of ($50,000) then became available via a H.E.L.O.C. (Home Equity Loan/Line of Credit) credit line. In other words, the homeowners had access to monies up to $50,000.
Banks competed for these loans during the years of rapid housing value appreciation (roughly the years of 2004 to 2008). As a result, HELOCs remained fairly inexpensive for homeowners to obtain. Oftentimes, in fact, there was NO cost to taking out these loans.
HELOCs were also easy to qualify for. They featured low- interest rates, which were many times tied to interest-only payments.
As if these features weren't enough, some HELOCs allowed homeowners access to a full 100% of their equity. In the scenario shown above, that translates to $100,000 in funds available to the Borrower (in comparison to the $50,000 in the 80/20 scenario). Many Borrowers took advantage of that availability.
Move ahead to the current year ...
Many of the HELOC Lines of Credit (or 2nd Mortgages) taken out 10 years ago are coming due. Many of the HELOCs had interest-only 10-year payment terms, starting the date they originated. They're now about to "balloon" ... or will be due in their entirety.
In best case scenarios, these HELOCs are beginning to amortize down and are experiencing principal reduction (a requirement of the loan); others with Balloon Payment Clauses are simply "due and payable". Neither case is ideal.
If YOU are someone that took out an HELOC during the years of 2005 to 2008 and are now facing that loan coming due ... dust off your Agreements and original paperwork and review its' terms.
If the Interest Rate on your FIRST Mortgage is higher than today's current Interest Rates:
It MAY make sense to Refinance your HELOC and your 1st Mortgage into one loan. By doing so, you pay off the outstanding 1st Mortgage and convert the HELOC prior to its coming due at the end of its 10-year loan term.
Please Note: Equity in your property is necessary in order to accomplish this Refinance of both loans.
The "ideal" Loan-to-Value position would be to apply for a new loan up to 80% of TODAY'S (current) Appraised Value ... and have that loan cover the payoffs for the two existing loans.
Remember: An HELOC is a LIEN against your property ... it is not "transferable" to another property.
Ask questions and take action well in advance of your HELOC coming due. That way we have ample time to examine your personal financial scenario, take action and gain the best financing options available to you ...
* Hoping to Buy or Refinance a home in the greater Chicago area? Contact Me today! I'll put my 40+ years of Mortgage experience and expertise hard to work on your behalf.
I'm easily found at:
Mortgage Originator - NMLS #216987 - IL Lic. #031.0006220 - WI Licensed
Gene Mundt, Mortgage Originator, an Originator with 40+ years of mortgage experience, will offer you exemplary mortgage service and advice when seeking: Conventional, FHA, VA, Jumbo, USDA, and Portfolio Loans in Chicago and the greater Chicagoland region, including: The Lincoln-Way Area, Will County, (New Lenox, Frankfort, Mokena, Manhattan, Joliet, Shorewood, Crest Hill, Plainfield, Bolingbrook, Romeoville, Naperville, etc.), DuPage County, the City of Chicago, Cook County, and elsewhere within IL & WI.
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