How is the coronavirus crisis affecting HELOCs?
How has the coronavirus affected the HELOC loan market?
The home equity loan market (HELOC) is a rapidly changing field. During the COVID-19 pandemic, some of the largest banks in the United States announced that they were no longer accepting new requests for HELOC.
Just as many individuals and families seek to tighten their budgets and minimize their risk, so too do banks and other lending institutions. For individuals, minimizing risk may mean canceling a gym membership or open a new credit card with no annual fee, but for banks, that includes taking actions such as tightening the requirements for new loans or suspending HELOC applications.
Chase, for example, announced in March 2020 that it would freeze new HELOC applications and require almost all new mortgage applicants to have 20% off and at least a FICO credit score of 700. Bank of America too. increased their credit score requirements for home equity products from 660 to 720.
Banks that no longer accept new HELOC requests
As of April 2, 2021, there are currently three banks that are no longer accepting new home equity line of credit applications:
What to do if you are applying for a HELOC
If you are in the process of applying for a HELOC at the moment, you do not need to do anything urgently. If you have submitted your application, you must continue with the process. Make sure you have all of your paperwork in place, just in case something changes the situation later.
What to do if you already have a HELOC
To date, no bank has announced any changes to existing home equity lines. While most HELOC agreements give the lender the option of canceling or calling due to a HELOC at any time, generally most banks would only do so in the most extreme situations.
If you already have a home equity line of credit, one change you’ve probably seen is a drop in your home equity line of credit. HELOC interest rate. Most HELOCs have an interest rate tied to the prime interest rate. The prime rate has dropped several times over the past few months, which means that the amount of interest you are charged on an existing HELOC balance has likely also dropped. If you can, it might be a good time to make payments on your principal or convert to a fixed rate HELOC if your lender allows.
At the end of the line
The COVID-19 pandemic has affected homeowners looking to sign up for new HELOCs. Chase, Wells Fargo and Citi have suspended new HELOC applications. If you already have a HELOC or are in the process of applying to another bank, there is nothing urgent to do. You must continue to use your HELOC as you would otherwise.