I Can’t Pay my HELOC Payments! What Are My Options?

If you cannot pay your HELOC, the bank CAN foreclose on your home. See our blog posts on foreclosure, here: https://www.miamibankruptcy.net/blog/foreclosure

HELOC means Home Equity Line Of Credit, and it is basically the same as a mortgage. In exchange for the money borrowed, the homeowner gives the lender a mortgage lien. If the money is not repaid, the lender can foreclose and sell the home.

There are some differences between a HELOC and a mortgage. Most mortgages have a 15 or 30 year term, and the loan is paid in full over that time. A HELOC, however, requires payments of interest onlyduring the “Draw Period” (usually 10 years), and then payments of principal and interest (P&I) during the “Repayment Period”. The Repayment Period can be very short (5 or 10 years) or even non-existent in the case of a Balloon HELOC. Or the Repayment Period can be 20 years or longer.

If the HELOC balloons, the homeowner has to (a) refinance the loan, (b) pay off the loan from savings or the sale of other assets, or (c) sell the home. Refinancing may be difficult or impossible if the there is insufficient equity. Payoff may be impossible if there are not enough savings or assets to sell. And selling the home may not yield sufficient proceeds to pay off the debt.

Even if the HELOC does not balloon, but instead has a five-, 10- or 20-year Repayment Period, the new P&I payments are typically double, triple or even quadruple the old interest-only payments. A homeowner with a $150,000 HELOC balance paying $406.25 per month (interest only) may face a 143% increase in payments if the Repayment Period is 20 years, a 192% increase if the period is 15 years, or a 292% increase if the Repayment Period is 10 years. Few homeowners struggling to pay $406.25 per month could withstand new payments of $1,590.98, $1,186.19 or even $989.93.

What are your options if you cannot afford the new payments, you cannot afford to pay off the loan, you cannot refinance the loan, and you cannot (or do not want to) sell?  Modification and/or bankruptcy.  In Chapter 13 we can try to modify the HELOC, or if the home is worth less than the first mortgage, we may be able to strip the HELOC off your home so that you would never have to repay it.

If your HELOC payments are increasing, you need information. Call our office to schedule your free, comprehensive, no-pressure consultation.  Time is not on your side.  As property values go up, it make it less likely that we can strip the HELOC of your home.