Study Finds Many Homeowners Clueless on HELOC Resets
Nearly half of U.S. homeowners will be facing resets to their home equity lines of credit (HELOC) during the next three years, according to a new study from TD Bank. However, many homeowners remain unprepared for the potential disruption this may present.
TD Bank’s study, which polled 812 homeowners, found that only 19 percent of respondents understood they would be making increased monthly payments with a HELOC reset, while 34 percent believed their monthly payment would be lower. Sixty percent that admitted not having a plan for dealing with their reset said they would not seek guidance on the matter from their lenders. More than one-quarter of respondents planned to refinance their HELOC by taking out another loan.
"Many HELOCs allow borrowers to draw for 10 years and make interest- only payments," said Mike Kinane, senior vice president for home equity at TD Bank. "When this draw period ends, borrowers are required to pay principal and interest, which may increase their monthly payments. It's important that HELOC borrowers plan ahead and review their contract to determine the best course of action based on their current and future financial situations."