Bankrate tells the story of a lady that got a letter saying her home equity line of credit (HELOC) had been decreased from $27,500 to $5,000. She was wondering how the bank could do this since she was a good customer and had never missed a mortgage payment.
Bankrate responded that many lenders are lowering the amounts available in HELOCs because the value of the underlying asset securing the loan (the house) has decreased in value in many cases. As such, banks are trying to protect themselves by lowering the amount that can be borrowed on a home. This makes sense to me -- home values go down, equity goes down, and thus the amount available over the mortgage goes down.
But what if the bank doesn't mention the change to its customers? Or if that mention is not clear?
Case in point: I have a co-worker that recently wrote a check and expected it to be covered by her HELOC. It wasn't because the bank had lowered the amount available on the HELOC. They said they had sent her a letter detailing the change (she said she never got it -- or at least couldn't remember getting it) telling her the new amounts. As she investigated the issue, the bank told her they were re-sending the letters out since many people apparently didn't get them. Yeah, right. Anyway, it was a mess for her as she had insufficient funds to cover one of her checks.
She got everything sorted out and had all the fees waived, but it was still a hassle for her and she had to take some time off work to get it sorted out.
Just wanted to raise this issue in case any readers out there were thinking of using their HELOC. You may want to check and be sure how much you have left available before making any solid financial plans.
Yet one more reason why it's a bad idea to borrow money; especially money that puts your HOME at risk! Here's an idea. If you want something, SAVE for it. Yeah I know you gotta have it all and you gotta have it now, but try this concept of "saving" and experience the benefits first hand! It feels good, and best of all it's very low risk to pay for things with money that you didn't pay to use!
Posted by: Seanian | July 16, 2008 at 04:05 PM