Reset of Loans Causes Increase in Home-Equity Payments

Written By: Emil FleysherMarch 18, 2015, , ,

As interest-only periods expire on loans begun during the housing bubble era, 3.3 million homeowners will be facing higher payments during the next four years on home-equity lines of credit, according to RealtyTrac. The Heloc loans that totaled $158 billion are requiring principal paydowns beginning this 2015 through 2018. There is a rising threat over the number of new defaults. This is due to the new monthly bills increasing an average of $146. This is especially concerning to those homeowners who already have properties underwater.

According to S&P/Case-Shiller index of property values, home prices have gone up 4.5 percent in the last year in 20 major cities. The threat is magnified because slowing price appreciation gives homeowners less hope of gaining equity. Home prices are 16 percent below their July 2006 high. This is after recovering 29 percent from the post-bubble low in March 2012, the index shows.

Homeowners back nearly $88 billion of the Heloc debt that began during the last house bubble. That is those who owe more the 125 percent of the resale value of the property. And, therefore have less incentive to keep up with payments. Although the reset that took place in 2014 didn’t increase the default, the expectancy for defaults is high due to the increase of payments whose loans are already underwater. RealtyTrac estimates the peak will be 62 percent in 2016.

Home-equity in Other States

There are several states that have a high amount of properties that are seriously underwater. And, that will have borrowers facing a payment increase. RealtyTrac reports that Nevada is at 84 percent, Arizona at 74 percent, and Illinois and Florida match at 71 percent. However, the state of California has the largest amount of loans that will be scheduled for reset- 645,872 to be exact. Out of those properties, two-thirds of them are seriously underwater with an average Heloc payment increase of $215.

If you have questions about Foreclosure, Loan Modification, Bankruptcy, Short Sale, or other alternatives, please feel free to call my office at 888-886-0020. Or, send an e-mail to, or complete the contact form below.

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