What to Do When Your HELOC Is Due

Tips for homeowners who may still be underwater.

More than three million homeowners who took home-equity lines of credit between 2005 and 2008 will soon reach the end of their withdrawal period and enter the repayment period, according to RealtyTrac, a supplier of U.S. real estate data. That means they must pay principal and interest, instead of interest only, on any outstanding balance. RealtyTrac figures that the average increase in monthly payments will be $140 in 2015. And more than half of those homeowners are still seriously underwater (they owe more on their homes than they could sell them for), with LTVs of 125% or more, putting them at higher risk of default.

Some lenders reach out to HELOC borrowers in advance of their “reset.” But if you haven’t heard from yours, consult your loan documents or call your lender to find out what will happen to your payment and when. If you don’t think you can handle the new payment, ask your lender if you can refinance into a new home-equity line of credit (with a new draw period) or a loan with a term that gives you a payment you can afford. If you can’t qualify for a new loan, your lender may be willing to extend the repayment period of your current loan from, say, 10 years to 15 or 20 years. Because lenders typically hold HELOCs on their own books, they may have the latitude to modify your loan terms, says Keith Gumbinger, of HSH.com.

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Patricia Mertz Esswein
Contributing Writer, Kiplinger's Personal Finance
Esswein joined Kiplinger in May 1984 as director of special publications and managing editor of Kiplinger Books. In 2004, she began covering real estate for Kiplinger's Personal Finance, writing about the housing market, buying and selling a home, getting a mortgage, and home improvement. Prior to joining Kiplinger, Esswein wrote and edited for Empire Sports, a monthly magazine covering sports and recreation in upstate New York. She holds a BA degree from Gustavus Adolphus College, in St. Peter, Minn., and an MA in magazine journalism from the S.I. Newhouse School at Syracuse University.