HELOC Freeze
I recently decided to make large payments to my HELOC and then swipe the equity line credit card for purchases in order to reduce the average daily balance on the HELOC for interest calculations (in other words, save money). Before I made that change, I got advice from my dad (a mortgage broker) about whether or not it was a good idea.
He told me at the time, not only is it a good idea, it’s a common practice in Australia, and has recently caught on in America. Recently, banks have become much more conservative about equity loans, and they’re under increasing pressure to be more conservative about the credit they’re providing to customers. With that in mind, there has been a recent freeze in home equity lines. My dad called me to warn me about it so that I wouldn’t have money frozen in my equity line that I would need to pay my other bills.
I decided to investigate. As far as I can tell, equity lines are being frozen when property values dip lower than they were when the equity line was first approved. Since my property has appreciated since my HELOC, and the value is holding well, this probably won’t effect me, but it’s a good idea to be aware of this practice — especially if you’re using your HELOC to make regular purchases, like I am. I found a Youtube video on the subject:
