VA Loans Blog

The HELOC Whip Saw

June 8th, 2014 6:31 AM by Joan Rusco

Are you among those who took out a home equity line of credit (heloc) a decade ago when home prices were peaking? If so, you may be among those who are now receiving notice that your heloc payment is going way, way up! Here’s what’s happening and here’s how we may be able to help.

Banks were pushing helocs ten years ago to help homeowners pay off other debt or fix up the house. It was an inexpensive and tax favored way to borrow. Inexpensive because helocs are like having a pile of cash to use as you wished and the only payment was for the interest only. If you used it to improve your home  you could write off the payment against your income for tax purposes. For ten years you only had to pay interest only on the loan. But now the ten year “interest only” feature is over or coming to an end. 

If you borrowed $50,000 at 8% in 2004 your monthly payment during this “interest only” period would be about $333. Here’s what’s happening now as the ten year interest only period comes to an end. The bank is recasting your line of credit into a 15 year 2nd mortgage. The payment increases from about $333 to about $478. That’s an increase in your monthly payment of about 43%!  Can you afford that? Maybe we can help.

Now is the time for you to contact us at VALoansMN and let’s see if we can roll your existing first mortgage and your heloc into one VA guaranteed home loan. We guaranty we’ll be able to cut your monthly payment way below what you’ll be paying on that existing 8% home equity line of credit as its interest only period ends.

Home equity loans were great when home prices were soaring and you needed cash to cover that new kitchen, bath, roof and other remodel projects. But now you are going to pay a steep price as the heloc is recast into a 15 year second mortgage. Let’s see if we can help with a VA Loan.

Posted in:General
Posted by Joan Rusco on June 8th, 2014 6:31 AM


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