Exploding real estate values gave millions of Americans the motivation to borrow against their home. They would take out home equity lines of credit, or HELOCs, meaning they could get cash for their equity.
Between 2004 and 2007, more than 325,000 San Diegans took out home equity lines of credit, totaling around $40 billion, real estate tracker DataQuick reports. Borrowers make interest-only payments on the loan for 10 years. After that, the line of credit converts to a mortgage and must be paid back — typically at a higher interest rate.
Had home values kept rising, paying back the loans might have been easy, through a refinance or another line of credit. Today, however, many who bought during the housing bubble are just glad their homes have regained their original value, which plummeted during the Great Recession. Their equity disappeared, but the lines of credit remained. Now the bills from that first wave of HELOCs, taken out in 2004, are coming due. Homeowners must start paying on both interest and principal on the outstanding balance, and often at higher interest rates of 5 or 6 percent.
While many equity lines have been resolved, this year, 14,000 San Diegans who owe an average $71,000 from outstanding lines of credit are facing a jolt in their monthly payment, Equifax reports. On average, monthly payments will jump from $200 to $700 after the line of credit resets into a mortgage.
In all, the San Diego metropolitan area has about 115,000 total loans and just under $8 billion outstanding, Equifax says. Of that, roughly two-thirds of these loans are likely to reset to mortgages in the next 3½ years.
“It’s one of those ticking time bombs that’s eventually going to happen,” said Bruno Lizarraga, a loan originator at San Diego-based Community Housing Works.
read more at: http://www.utsandiego.com/news/2014/jun/17/tp-home-equity-lines-about-to-come-due-for-many/
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