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What Should You Do When Your Home Equity Line Expires?

Ken • May 16, 2018

Did Your Home Equity Line Expire?

Do you have a home equity line of credit? If you are approaching year 10, you need to make sure that you are prepared for a large rate increase.

Home Equity Lines 101

Home equity lines often last a decade with low payments. However, you can delay the increase in your payments if you choose to refinance the loan. Every home equity line of credit (HELOC) has two separate stages.

The draw period is first and typically lasts between 10-20 years. During the draw period, monthly payments are applied to the interest on the loan and not the principal itself. Once the draw period is over, the second part will begin.

Your HELOC will go into the amortization period when you will start paying off both the principal and the interest. If you still owe a decent amount on the balance, your payments could quadruple.

We Aren’t Kidding About the Payment Increase

Most homeowners don’t realize how suddenly and drastically payments will increase until it’s too late. For example, if you have a $30,000 home equity line of credit over 20 years and a 3%, your interest-only payments might be around $75 a month.

What will they be once amortization begins? $166 or more. Keep in mind that many HELOCs have higher interest rates and lower repayment periods.

Refinancing the HELOC

You can also refinance the home equity line of credit by rolling it and your first mortgage into a new primary mortgage. If you refinance into a 15- or 20-year mortgage, you can take advantage of relatively low rates and reduce your total interest payments.

However, before using this method, you should consider the potential account closing costs. You should try to keep your home long enough that your monthly savings will be greater than the cost of refinancing.

Partner with Equity Mortgage to Refinance Your Home Equity Line

We are experienced in getting homeowners the best possible mortgage product or HELOC for their situation. Since every client is in a different situation, we encourage you to get in touch and learn how we can help.

Contact us today by calling 443-471-4310. We look forward to hearing from you!

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