May 13, 2015
Reset Tsunami
Newsday quoted me in When Home Equity Lines of Credit Reset when your plan resets. It reads,
A decade isn’t really a long time – just ask the millions of homeowners whose 10-year-old home equity lines of credit are resetting.
There are two types of HELOC resets: Variable interest rates can reset, and an interest-only repayment plan can reset to amortize. That means payments will switch to include principal and interest, explains David Reiss, a law professor specializing in real estate at Brooklyn Law School.
Many are in for a shock. If you’ve been making interest-only payments for 10 years, “the switch to amortizing over the compressed 20-year period [remaining on a 30-year loan] can lead to an increase of 100 percent or more,” says Peter Grabel of Luxury Mortgage Corp. in Stamford, Connecticut.
If your HELOC is resetting, know what to expect.
“You will no longer be able to draw on the equity line,” says Casey Fleming, author of “The Loan Guide: How to Get the Best Possible Mortgage.” You’ll have a specific time to pay off the loan.
Consider your goals: “What is your purpose for having a HELOC?” says Ray Rodriguez of TD Bank in Manhattan. That drives the options.
Plan for change: “Prepare for the end of the draw period. Find out what your new payment will be,” says Kevin Murphy of McGraw-Hill Federal Credit Union in Manhattan. Cut expenses to make up for the jump.
Explore options: Consider refinancing your debt into a longer-term fixed-rate loan, suggests Ben Sullivan of Palisades Hudson Financial Group in Scarsdale. Replace the HELOC with a new one, or combine your first mortgage with your HELOC into a new interest-only ARM. Talk to a mortgage counselor.
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