HELOC Resets: Payment Shock Coming to a Home Near You
HELOC Resets Still a Concern
Home Equity Lines of Credit or HELOCs are one area of focus of the July Mortgage Monitor issued by Black Knight Financial Services on Tuesday. The company said there is still concern about possible payment shock for homeowners with HELOCS as the millions put in place during the housing boom reset and begin to amortize.
Black Knight estimates that at least 2.5 million borrowers face these resets over the next three years. At that point the period during which borrowers can draw down on their home equity through these loans will end and the loans will convert from an interest only payment schedule to a fully amortizing one. The average increase in payments is estimated at $250 per month.
According to Kostya Gradushy, Black Knight’s manager of Research and Analytics, this average could increase if homeowners continue to draw on their HELOCS until they reset. “Black Knight’s analysis of outstanding HELOCs that have yet to reset is based upon current utilization ratios,” said Gradushy. “Currently, borrowers whose HELOCs will reset over the next three years are utilizing just under 60 percent of their available credit. Further draws on these lines – for those that have not been locked – could result in ‘payment shock’ after they are reset that is even higher than the national average of $250 per month. Looking further down the road, HELOCs not likely to reset until 2019 are exhibiting even lower utilization ratios – about 40 percent of available credit. Upon reset, those borrowers are currently facing average monthly increases of $200. Should their drawing pattern match that of older vintages, we could be looking at a significantly higher risk of ‘payment shock’ for this segment.”
Let’s not forget about all those 10 year interest only firsts that are going to start to pop as well…