In working with sellers, often the first question asked is “how much do you owe against your home?” Determining if a home has equity is crucial in formulating a marketing strategy. The collapse of home values has left many homeowners in underwater mortgages and many others on the bubble. During the height of the market, many homeowners took out HELOC loans (Home Equity Line of Credit). This was a common way for people to ‘draw’ against the equity in their home when they needed cash for any number of reasons.
However – like every LOAN, there comes a moment in time when the lender wants to be re-paid.
HOUSINGWIRE recently published an article, “OCC warns of rising HELOC risks”. The Office of the Comptroller of the Currency (OCC) is warning of the rising risks from HELOC loans in the coming years. HELOC loans reach an end-of-draw period where the homeowner no longer can make withdrawals, and must now begin re-paying the principle value.
This graph speaks to the growing level of HELOC loans that will reach the end-of-draw period in the next six years. This will contribute to the growing downward pressure on lending. The critical question to ask is will these borrowers be able to make it by, day-to-day without access to these additional funds? In addition, as our economy slowly improves and interest rates slowly rise, what hope do these homeowners have in re-financing this debt?
As the Real Estate market continues to improve, expect bumps in the road along the way.