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Homeowners With Home Equity Lines Of Credit Could Face Ballooning Monthly Payments

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(CBS SF) — Millions of homeowners who took out home equity lines of credit during the housing boom are facing a looming deadline that could mean much larger monthly payments.

The credit lines typically reset after ten years, and the principal becomes due, either in a lump sum or in an amortizing 15-year-loan.

“A lot of people are in for a surprise,” mortgage banker Richard Redmond of All California Mortgage said. He estimates that some homeowners could see their monthly payments more than double.

“You could see someone who’s been making a $200 to $300 payment suddenly faced with one that’s $800 to $1,000,”  Redmond told ConsumerWatch.

Marin County homeowner Carol Keyes feared she would be one of them.  Keyes took out a loan in 2005,  that gave her instant access to almost $130,000 for a piddly $314 a month interest-only payment.  “I thought the terms were excellent,” she recalled. But with the ten-year deadline approaching, she worried she would have to pay all that money back at a moment’s notice.

“I was actually kind of frantic that this payment would be due,” she said.

It’s estimated that more than 800,000 loans will reset in 2014.

“Different banks could have very different policies around things like this,” Redmond said. For one thing, lending standards are now much higher.  “The rules of the game have changed.”

His advice?  “Before you do anything dramatic – like sell your house – talk to your lender, find out what all your options might be.”

Keyes ended up with a surprisingly good deal.   Her bank, Chase, extended her interest only period for another 20 years.   She’s not sure why, but she’s not complaining.  “I called them to verify that this wasn’t some kind of weird joke,”  she said.

It’s also important not to confuse a home equity line of credit with a home equity loan. With loans, you start paying off the principal right away.

Bankrate Information on HELOCs: bankrate.com/finance/topic/heloc.aspx

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