Greetings and welcome to the part of summer my children refer to as “summer’s almost over.” While technically true, and with Labor Day coming early this year, it may feel like summer is coming to a screeching halt. There is, however, still lots of time to enjoy summer. Our recent weather — extended heavy rain, followed by cool temperatures — allows us to pretend like it is still spring with longer hours of daylight. I suspect sweaty days are ahead soon. After a brief period of recovery in May from my Boston Marathon, I have been busily accumulating miles on my feet, my bike, and (on days I facetiously refer to as “rest days”) in the pool. I hope you are making the most of Chicago’s shortest season and doing something you enjoy outside.
On a serious mortgage related note, I want to draw your attention to recent discussion amongst several federal agencies concerning home equity lines of credit (known in jargon as a “HELOC” and pronounced “he lock”) that are nearing their end-of-draw periods. As background, a home equity line of credit is typically a second mortgage on a property that allows the homeowner/borrower to increase the loan balance by writing checks. While the uses for the funds are not limited by the terms of the line, they are traditionally used for home improvement. HELOC’s have been used to acquire real estate, automobiles, and consumer goods. Some issuing banks even issue a HELOC credit card that provides quick access to one’s home equity. All HELOC’s have a draw period during which the borrower can increase the loan balance up to the approved line and during which only interest only minimum payments are due. This is similar to the way a credit card works. After the draw period ends, typically ten years, fully amortized payments are due (principal and interest). This increase to the amortized payment can be a shock to some borrowers who have made solely the minimum payment. As a number of borrowers will reach their end of draw period in the coming months, the perceived risk is that many will be unable to make the higher payments, or because their homes have lost value, unable to refinance, and, thus trigger a new wave of loan defaults. Five Federal agencies are showing concern for this colored by the history of the recent mortgage crisis. They have suggested broadened guidelines for refinances, and that procedures be put in place to allow for extensions, renewals, and even rewritten loan terms to prevent default and its consequences.
If you have a HELOC that is reaching its end of draw period and you are concerned about your ability to make the higher payments, now is a great time to explore the options that may be available to you. These may include paying off the loan, obtaining a new HELOC, if you qualify, or even combining the HELOC with your first mortgage through a cash out refinance. If you’ve read this far, and this discussion applies to you, please contact me to discuss your situation. I would love to help.