Home Equity Freezes Lines of Credit
The current credit crunch together with declining home values in our economy has had yet another far reaching effect. Nationwide, banks have begun to freeze consumer’s home equity lines of credit. In the last several months, banks are starting this practice and consumers who are planning on tapping into this source of credit have to check first and make sure it is still available to them.
Many customers are surprised by the credit line freezes as the banks are tightening up on their credit practices. Not all banks are freezing the home equity lines of credit yet, but many are looking into possibly doing this, as they cannot keep up with the falling values of homes and cannot extend home equity lines of credit on homes that are not going to keep increasing in value in this terrible housing market, at least not now.
The reasoning for the tightening of this form of credit is the declining of the value of the home and the protection of the banks themselves and ultimately their customers too. The banks that are freezing the home equity credit lines are notifying their customers via the mail with a letter.
The general rule of thumb for freezing home equity lines of credit is for customers who don’t have much equity left when considering the declining value of the home. New equity lines are becoming restricted to people with excellent credit raings and can not exceed 85% ot he home’s value.
Risk levels have changed dramatically often since the home equity loans were originated due to the changing economic environment. The home equity loans were appealing since the interest rates were low when compared with credit card rates and had the added bonus of being tax deductible.
If you have an established home equity line of credit, check with your bank about possible changes in the credit line. Make sure the rules have not changed for your particular situation, so you can protect yourself in the near future if you were planning on utilizing one of these lines of credit, as many people do, for major expenses or house additions.
