We would like to inform you of an option that some lenders are exercising regarding equity lines of credit. Recently, we have had a few clients who have received a notice reducing their line of credit without warning. With that being said, we don't want to alarm you too much if you have a credit line, and still possess a significant amount of equity (roughly 20% or more). If, however, your combined-loan-to-value is high, and the value of your home has decreased, this may be of a concern to you. Equity line lenders are seeking to protect themselves from potential losses during this time of uncertainty. If you have not accessed your highest limit, the lender may reduce it. If you have accessed the full credit line at this time, just be aware that if you start paying down the principal, the lender may reduce your limit. Some lenders are allowing you to appeal their decision if you can prove that your remaining equity is sufficient to meet their guidelines.
One way to avoid the lender from possibly reducing your highest limit is to draw the full amount. Prime Rate is finally very low again at 5.25%. Once you draw the amount the question then becomes where to place the funds, either temporarily or permanently. To begin with, you would only consider this if :
· You were relying on accessing your equity line of credit to help with future finances for any reason.
· You can invest the money at a higher rate of return than you are paying, thus profiting the difference. (Please note, even if you place the funds in a traditional savings account and lose a few percentage points of interest in the process, it may be worth the loss if you were depending on the use of those funds in the near future.)
Edited by SemiBizz, 11 April 2008 - 10:31 AM.
