A New Wave of Foreclosures Expected When Boom-Era HELOCs Turn 10

Although the economy has seemingly recovered from the recession and the real estate market is following suit, people who purchased properties between 2005 and 2008 shouldn’t assume they’re in the clear just yet. In fact, homeowners who relied on a home equity line of credit to save themselves could be facing higher monthly bills in the near future. Here’s why another round of foreclosures could be looming.

Homeowners Who Acquired a HELOC Could Be in Danger

When housing prices reached their peak, millions of American homeowners used their homes to acquire a HELOC. With this type of second mortgage, homeowners were able to use the extra stream of cash flow for anything they wished. What makes a HELOC unique is that it requires a homeowner to only pay interest during the first 10 years of a 30-year mortgage – not the principal. After 10 years, the homeowner is required to pay both the principal and the interest on the loan.

Experts Predict a New Wave of Foreclosures in the Near Future

Homeowners who purchased their property before the housing prices plummeted could be entering a financial nightmare, when their second mortgage loans mature past the principal-free decade of payments. Those with first and second mortgages on their properties, who were victims of the housing market crash, will likely find that their homes aren’t worth the remaining balance of their first mortgage – not to mention the second one. This will result in many homeowners drowning financially.

When HELOCs mature out of their introductory payment period, millions of American homeowners will face payments they can no longer afford. As a result, this could lead to yet another destructive wave of foreclosures in the years to come.