2014-06-02 — wsj.com
At issue are home-equity lines of credit, known as Helocs, which allow homeowners to tap their equity to fund home improvement, college tuitions and other expenses. Those loans typically let borrowers make interest-only payments for the first 10 years before requiring principal payments as well.
That reckoning will come this year for an estimated 817,000 borrowers owing more than $23 billion in Helocs, more than double last year's level, according to estimates by Equifax, the credit-reporting firm, and the Office of the Comptroller of the Currency. An average of about $50 billion in loans will reset in each of the next three years.
Matt Micuda learned last fall that the $70,000 owed on a line of credit on his Felton, Calif., home would recast in January, requiring payments of principal and interest. His monthly payments jumped to $560 from $270 and will go higher still if interest rates rise.
"It was a big shock," said Mr. Micuda, 51, who owns a sign-making business. Before payments rose, he had considered purchasing a new car or truck for the company. "I thought, Wow, forget about the extra car payment, or taking that trip, because there goes $250 a month," he said. He doesn't have enough equity to refinance the two mortgages on his home to extinguish the Heloc.
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