CHERRY HILL, N.J.–At the height of the housing boom a decade ago, many Americans took out home equity loans as the value of their houses continued to grow.
Now, 10 years later, while values have returned to many of those same homes, those loans are also coming due.
As the Wall Street Journal noted, “many people will be surprised that their monthly payments are about to go up—some, substantially.” Mike Kinane, SVP-consumer lending with TD Bank, told the Journal, “It’s been 10 years since they signed the loan documentation, and for a lot of our customers, it’s not top of mind.”
But those loans are about to become top of mind for many as they “reset” and principal becomes due, not just interest payments.
Kinane noted, for instance, on a typical $50,000 HELC at TD’s best rate of 3.25%, the interest-only payments during the 10-year draw period would be $135.42 a month. At the end of that term, the balance would be converted into a 20-year, fixed-rate loan with a 3.25% rate, with payments now including principal and interest. The homeowner’s new payment would more than double, to $283.60 a month, the Wall Street Journal reported.
In August and September of 2016, TD surveyed 812 homeowners who currently have HELCs and found that 23% didn’t have plans in place to handle the end of their 10-year draw period, according to the Journal. Only 19% of the respondents understood that a HELC reset would increase their monthly payments.