DANGER IN HELOC FINE PRINT

Dated: May 11 2015

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For those of you out there who have a HELOC, when was the last time you checked your fine print on how the loan will consolidate when it moves into the Repayment Period? Do you even know when that is? A HELOC, or Home Equity Line of Credit is a type of loan that allows a borrower to open up a line of credit using their home as collateral. It is very different from a conventional home loan in many ways. The main difference is that a HELOC is a line of credit that allows a homeowner to borrow up to a pre-determined amount set by the lender, whereas with a conventional loan/mortgage, the amount borrowed is the total amount financed. A HELOC is a lot like a revolving credit card. Your bank or lender will give you a line of credit for a certain amount, say $100,000. And you can draw upon it as much as you’d like, up to that $100,000, if and when you want. It’s a good choice for homeowners because it gives them the option to use the line of credit if they need it, without having to pay interest if they don’t. HELOC's have time limit that they are available. They are usually five to ten years, and then they switch into Repayment, which means you can no longer borrow on them; and the amount that has been borrowed from them converts into a conventional loan, with mandatory monthly payments with interest. Many HELOC'S dating from before the crash in 2008 - 2009 will be resetting into the repayment period within the next year or so, with higher interest rates then the norm and assorted penalties such as early pay off and re financing kicking in. That on top of the conventional loan they are carrying on their property could spell financial disaster and/bankruptcy. Many HELOC owners could see their monthly payments as much as tripling. If you have a HELOC, dig out that paper work now and make sure you understand it. Know upfront what is going to happen when you enter the Repayment Period and take any steps you can to lessen or even head off the monthly financial impact it will bring.

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Michael Krivacs

I grew up in Beach Haven on Long Beach Island and graduated from The American University with a BS in Business Administration. While in college I met my wife Holly. After school I worked as a Wage ....

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