From the NYT:
Borrowers who opened home-equity lines of credit at the height of the housing bubble should brace for stiff increases in their monthly payments.
Helocs, as they’re known, were aggressively marketed from 2004 to 2007, and now the bills are coming due. These equity lines typically have a 10-year period during which the borrower can use the line of credit and pay only interest. At the end of 10 years, the borrower must begin paying both interest and principal on the outstanding balance, which could add up to hundreds of dollars more a month.
The bulk of the resets are expected from 2015 to 2017, but about $30 billion in outstanding Helocs will reach the end of the interest-only period this year, according to the Office of the Comptroller of the Currency, which regulates banks. Balances due to reset will rise to an estimated $52 billion in 2015, $62 billion in 2016, and $68 billion in 2017.
A recent report from Moody’s Investors Service offered an example of the coming payment shock for borrowers: A homeowner with a $40,000 Heloc balance and a $210,000 mortgage at 4 percent will see a monthly increase of nearly $300 — to $1,389 from $1,103 — when the equity line converts into a 10-year amortizing loan, assuming an interest rate of 3 percent.
The shock will be even worse for borrowers with equity lines that require balloon payments after the interest-only period; they will owe the balance in full.
Fearing another wave of delinquencies, the comptroller’s office is prodding lenders to assess their level of Heloc risk and be proactive about reaching out to these borrowers.
Homeowners with equity lines nearing the end of their interest-only period shouldn’t wait around in the meantime. “Borrowers should raise their hand very early and expect to be helped,” said Allen J. Jones, a managing director of RiskSpan, a mortgage consulting firm in Washington.