A study shows that several people are unaware or unprepared for the reset that will be applied to home equity lines of credit (HELOC) in coming years. Of the 800 homeowners questioned, 43 percent will be affected by the change, with 23 percent admitting that they have no financial plans for handling the reset.
Conducting the survey, TB Bank questioned borrowers on their understanding of HELOCs, and their plans for when changes are made. Only 19 percent understood that monthly payments will increase, and 34 percent actually believed that repayments will fall. One-third of those who borrowed before 2011 didn’t know the end date of their draw period. This rose to 42 percent for Baby Boomers.
TD Bank’s Home Equity’s senior vice president, Mike Kinane, said, “When this draw period ends, borrowers are required to pay principal and interest, which may increase their monthly payments. It’s important that HELOC borrowers plan ahead and review their contract to determine the best course of action based on their current and future financial situations.” He added that consumers with no financial plan for the end of their draw period must contact lenders as soon as possible. Most responsive institutions will provide ways to pay down outstanding credit, he said.
For those affected by the HELOC reset, it’s crucial to act now. Otherwise, homeowners could face large increases in their monthly repayments, putting pressure on their finances.
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