HELOC Payments are Going from Interest Only to Fully Amortized
This time it’s not about the recovering housing market but about making sure borrowers who took out home equity lines of credit during the boom will be able to make their monthly payments once their loans reach the ten year mark.
Many borrowers have been able to continue making payments on their loans because they have only been making payments on their interest, not their principal balance for the first ten years. At the ten year mark, payments can as much as triple for many borrowers, rendering repayment impossible for some.
Banks have been trying to find a solution so that borrowers continue to make payments on time and prevent delinquencies because the success of consumers can mean their success as well; very much like their failure can spell disaster for banks once again.
According to an article in Reuters, banks have encouraged borrowers to sign up for a workout program. This allows borrowers to change the terms of their lines of credit if they find themselves unable to make the monthly payments. One solution is to allow borrowers to only pay interest for a longer time after the ten year mark or repay the principal value for a longer period of time.
The bottom line is, consumers need more time and, in some cases, there is no more time to give out. If banks are wise though, they will make sure their consumers can continue to make payments or risk these loans going into default.
Thus far, Bank of America has announced that they are reaching out to consumers more than a year before they have to being paying the principal limit on their loans in order to make sure they are fully aware of their financial obligations and know their options should they be unable to make payments.
This MAY work for some borrowers, however, payments have already started rising for home equity lines of credit done in 2003. These borrowers may be able to make their payments or they may be unable to, the point is, there are solution available for some borrowers while others are left frailing in the deep sea of debt.
According to data collected by Equifax, borrowers who are delinquent on their loans have risen almost three percent in the past year from lower than 3% to 5.6% by the end of 2013. Even more troubling is the fact that the Federal Reserve can start rising rates by 2015, making monthly payments jump even more than borrowers had anticipated.
With all these potential problems brewing, it’s important to consider your options for a safe financial future. Whenever clients tell me they prefer a home equity line of credit I make sure they know what they are getting into. Very much like clothes come in S, M, L, and XL no financial solution should be one size fits all. Instead consumers should analyze their situation, talk to an expert and determine the best plan of action. What worked for someone else may not work for you.
If you want more information on the reverse mortgage program give PS Financial Services a call at (888) 845-6630 or via email at info@PSReverseMortgage.com. We do not pressure those who inquire. We are simply here to help.