HELOCs are extremely popular among homeowners who plan to undertake home renovation projects or need access to very large amounts of money, in general. They are useful for large recurrent expenses, or developing projects on which it would be difficult to put a price tag. Regardless of the reason behind their decision, a lot of individuals are currently applying for HELOCs. However, as useful as these financial products might be, they are also extremely dangerous, especially during times of economic instability. The Covid-19 pandemic has reduced the incomes of many families throughout the country, some of which are currently trying to repay their HELOCs. In some situations, repaying the money on time may become impossible, which puts many individuals at risk of losing their homes. This having been said, being unable to repay a home equity line of credit does not necessarily mean that the lender will take possession of your home. There are ways to avoid this unfortunate outcome. Here is what you need to know:
The Lenders Want Money, Not Homes
One of the most common mistakes in these situations is that some people give up right from the beginning, thinking that the bank is looking forward to taking possession of their home. In reality, lenders are aware that in some situations, borrowers may not be able to repay the money on time. As a result, most will agree to work with the borrowers to find a solution. Generally speaking, lenders would rather get their money back than take possession of the borrower’s property. The first thing that an individual should go if he finds that he can no longer repay his HELOC is to go to the bank and explain the situation. Chances are that, if there is an ongoing national or international crisis, the bank will already have had developed repayment alternatives.
In most cases, lenders try to work with the borrowers and help them repay the money more easily. This can be done by refinancing the loan or through other deals.
Save Money Wherever Possible
If your income has been reduced for whatever reason, consider reducing other expenses to save as much money as possible. This can include a wide variety of creature comforts from things like Netflix subscriptions, getting food from the farmer’s market instead of the supermarket (the difference in price may not be much, but every bit helps), etc. Keep in mind that the purpose here is not to cut your monthly expenses enough to manage to repay the HELOC, however, when the bank offers another deal designed to help you repay it, you will have to have enough money to take. Most lenders refinance loans to give borrowers more time to repay them, but they do not allow individuals to postpone payments.
Consider Getting a Debt Consolidation Loan
One of the most often-used ways to get an expensive loan under control is through debt consolidation. These loans use the borrower’s home as collateral, they have long repayment terms (up to 10 years), and relatively low-interest rates. The best part about them is that they can be used to repay virtually any type of debt, including lines of credit. Consider applying for a debt consolidation loan, especially if you have other forms of outstanding debt. In some cases, repaying these in full may allow individuals to redirect some of their monthly income towards repaying the HELOC. If you have debt on your credit cards, a personal loan, a payday loan that needs to be paid, or anything in-between, make sure that you repay these first. This may reduce your monthly expenses enough so that if you also budget your income, you will be able to repay the home equity line of credit.