Getting Your Home Equity Line of Credit Reinstated
Getting your home equity line of credit frozen or reduced
Many people have been receiving letters from their lenders stating that their home equity line of credit has been frozen or reduced. This is primarily the result of two things: the value of your house has fallen or your financial circumstances have changed.
Some of you may have been caught off guard by this, especially if your income hasn't changed in any way, causing you to believe there are no issues or problems with your home equity line of credit; that is until you receive the letter saying you no longer have it.
If you had plans to tap that line of credit for something you really need or wanted, this can be a blow to your plans, and so you need to take some steps in order to either get it reinstated quickly, or at least know the steps to take to change the situation to where your HELOC can be restored.
Being a financial advisor in a past life, I never recommended that people use their home as a piggy bank, as it could come back to bite them hard. But many people don't heed that advice, and so are shocked when they no longer have access to immediate cash.
Revolving line of credit
Usually a home equity line of credit is set up a a revolving credit line, so it's much different than a mortgage which is fixed as far as the price paid for the home (interest rates can be adjustable if your loan was an ARM).
So while interest rates can change in those cases, and thus the monthly payment, the actual amount of the loan of course doesn't.
But this isn't the case with a home equity line of credit, which is subject primarily to market conditions, and so when the value of a home falls, so will the credit line, and so either it will be frozen or cut back.
Read the letter completely that is sent from your lender
While you can be caught off guard by your home equity line of credit being lost because you're thinking in terms that everything is ok because you income hasn't declined, or possibly has even risen. But, again, most credit lines are based more on the value of your home than anything else, although ability to repay obviously pays a part too. But a secured loan is more important to the lender than anything, and that's tied to the value of your home.
Another reason you can be caught off guard is because a lender doesn't have to send you a letter telling you there's been a change in your home equity line of credit until three business days after they've taken the action.
Getting your home equity line of credit reinstated
Talk with your lender
One thing that usually will need to be done is to communicate with your lender when you receive your letter, as this will clear up any confusion and put them on alert that you're involved and want to resolve the situation.
Why was your home equity line of credit changed
While your letter from your lender should have been, and is required to be specific, you don want to know the reasons why the HELOC was changed through reduction or freezing the line of credit.
Again, almost all of the reasons your home line of credit will be frozen or reduced is because of a change in income or a change in value of your home.
This is why it's imperative to find out from the standpoint of your lender what the reason is, as something may have happened to change that that the lender is unaware of.
In other words, the bank is probably behind in what is happening in your life or in the value of your home, and so you want to be absolutely clear on the reasoning so you can correct it if it's based on circumstances that no longer exist.
Request for your home equity line of credit to be reinstated
If you believe you're correct and your lender is wrong, you can ask for your line of credit to be reinstated, which is best to be done in writing.
Assuming the conditions have changed and no longer exist, your lender is required to reinstate your home equity line of credit upon request. But if you don't request, they don't have to do it.
They also are required to respond to a written request and search out your circumstances to see if anything has changed.
Fees connected to home equity line of credit reinstatement
You don't want to get too cute with all of this, because if the reasons your HELOC was frozen or decreased were legitimate, paying to do the research can be charged to the consumer, so you don't want to add insult to injury and create a new bill or bills for yourself only out of stubbornness or not accepting the circumstances surrounding your home value.
If you've lost a job or have decreased income, or your home has indeed lost value, they don't have the obligation to pay for a new appraisal or credit score check. Many lenders will pass those costs on to you in the form of billing you for it. So be sure there are legitimate reasons for asking for reinstatement, as many things can be done to change it, but if all things are the same, it's like kicking against a brick wall for no reason.