Some lenders freezing home equity credit lines

Tools

Story Published: Sep 29, 2008 at 8:38 AM PDT

By Herb Weisbaum

It's another one of those unpleasant surprises -- caused by the drop in home prices.

Many lenders are cutting back their exposure by freezing or reducing home equity lines of credit -- HELOCS.

I asked Greg McBride, senior financial analyst with Bankrate.com why this is happening. And he gave me this example.

"They may have approved that line of credit a few years ago for $50,000 when you actually had $50,000 of equity in the home. But if the market value has declined, you don't have $50,000 of equity anymore and the lender certainly doesn't want to be on the hook for that amount if that's not what can be secured."

So what if you find yourself is with a HELOC that's been reduced or frozen and you need that extra credit?

"Contact the lender. Plead your case," says McBride. "There's a real possibility that when looking at your personal circumstances, they may alter that decision and not leave you in the lurch."

If the lender won't budge, you can always try to refinance that home equity line with another lender.

Remember, HELOCS are a good way to borrow money at relatively low rates for important long-term expenses, such as a home-improvement project or college expenses.

The editors at Consumer Reports Money Advisor caution that using a HELOC to buy a new TV or take an expensive vacation "means your cash flow is out of whack." Those kinds of purchases, they say, "should be built into an annual budget, get financed by income and savings."

One more tip: Don't close an open HELOC don't close it. Just leave it alone and consider it a backup resource to use in an emergency.

More Information:

Bankrate.com: HELOCS

More consumer news

Current Weather

Current Temp 54.0 °F

Overcast

Video

More Weather

Current Weather

More Weather

Upload directly from your mobile device.

Learn how

YouNews

This content requires the latest Adobe Flash Player and a browser with JavaScript enabled. Click here for a free download of the latest Adobe Flash Player.