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Taylor
McKenzie, 9-14-08
Has your bank frozen
your Home Equity Line Of
Credit?
More and more banks are re-calculating the
estimated value of your home because of the
declining property values hitting our entire
country. Let’s face it…..they’re
scared.
If they determine that the current value of
your home has dropped severely enough, one of
the ways they can reduce their possible risk it
to freeze your existing credit line, (if you
have any portion that is un-used anyway) so you
no longer have access to those
funds.
Guess what…this just
hit your credit
score!!!
This can even affect people with excellent
credit because now, that “high credit limit”
has just been reduced, which can negatively
affect your “balance-to-limit”
ratio. Because this
particular category carries 30% of your total
credit score weight, the loss of that credit
limit on your existing line of credit can cause
your credit scores to drop; and in some cases,
this drop may be huge.
On top of the hit to your credit scores, now
you no longer have use of those “emergency
funds” if you ever need them. This can
create a financial hardship on you, in
itself. Of course if
you’re already maxed out on your HELOC, there
is nothing the bank can do and your scores are
already reflecting the fact that your line is
maxed out.
Unfortunately there is no way to know if your
bank is going to pull the rug out from under
your existing credit line, if they haven’t done
so already. You’ll find
out when you get a letter in the mail from your
lender and by then, the deal has been done and
your line has already been
frozen.
What can I do if I still have
funds
available?
If you do have money available on your existing
line of credit and you know you’re going to
need that money in the future, the only choice
you have to be certain that the funds are still
going to be available, is to draw out the
remaining balance and place it in the highest
interest bearing account that you can
find.
If you know you’re not going to use it for a
year or so, consider a CD (Certificate of
Deposit). Shop around
at your local banks or go
on-line.
Rates for CD’s can vary greatly from
institution to institution and a lot of
them have specials going on all the
time. If you
don’t want to lock it up for a long term,
then shop around for a high paying money
market account
The only drawback to this temporary solution is
you will
have to pay interest on the entire balance
every month. Because Lines
of Credit are all tied to Prime Rate,
we’ll all just keep our fingers crossed that
the Fed will leave it alone so we can juggle
our finances a bit longer during this
crisis!
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