Our friend just got a divorce and he told us he stopped paying his mortgage. When we asked him why, he said he did it foreclosure. 🥀💔 We wish him well (and hope he finds a therapist).
For homeowners, a popular way to get cash fast outside of a traditional loan was to open a home equity line of credit, or a HELOC. 🏠 However, the script is getting flipped on HELOC’s and taking one out now looks a lot different than the past.
Here’s Five Fast Facts on HELOCs and how they’re shifting:
- 💰 Money Pit - Homeowners are sitting on a ginormous pile of equity (about $34 trillion) but most don’t want to mess with their low mortgage rates. So instead of refinancing, they’re turning to home equity loans or HELOCs to access cash. One is a lump sum with a fixed rate, while the other works more like a credit card tied to your home.
- 🏦 Loan n’ Groan - HELOCs have started to look a little different than they used to. Instead of just banks and credit unions, nonbank lenders backed by investors are now offering them too. And because those hot shots want quicker returns, it’s shifting how these loans are set up.
- 🤑 Business In the Front - HELOCs used to let you borrow only what you needed, kind of like a backup fund. Now, many lenders require a big upfront draw, sometimes 80% or more of the credit line. That also means you start paying interest right away. With added fees and rules, many HELOCs are becoming less flexible and more like standard loans.
- 🚨 Party In the Back - Taking out more money upfront isn’t always a good thing. Research shows that when lenders require borrowers to draw 50% or more of their HELOC right away, it increases the chance of missed payments. Borrowers who use over 95% of their credit line are about 4x more likely to fall seriously behind.
- 🤔 Extra Credit - If you’re looking for a true “use it when you need it” HELOC, don’t just go with the first offer you see. Compare lenders and watch out for things like big upfront draw requirements or hidden rules. Traditional banks and credit unions often provide the most flexibility.
🔥Bottom line: As always, when it comes to taking on any kind of new debt, do your homework! While we’re chatting about homes, Springtime is prime time buying season. Feeling an offer war coming on? Check out this article where we give some hot tips on how to crush the competition.
Would you consider taking out a HELOC?
Let us know by connecting with us on Facebook and Instagram! Also, remember to share this newsletter with your friends & coworkers!
BTW, If you’ve read this far and haven’t yet signed up for the weekly Paycheckology newsletter, CLICK HERE!
