A home equity line of credit, or HELOC for short, can provide a homeowner with financial flexibility for anything from debt consolidation to home improvements. However, the money is not always going to be available. A HELOC is a two-part loan. The first part allows you to use your available credit for whatever purpose you choose. The second part converts the outstanding balance to an amortizing loan with monthly payments of principal and interest over a term of 10 to 20 years. If you still need access to the credit line, contact your bank about a term extension.
Rest the Line
Pay your HELOC down to a $0 balance and keep it there for at least 30 days prior to maturity if possible. This is known as “resting” the loan. Credit lines are meant to be drawn upon and then paid back. If you fully extend the line without paying it down, you show the lender that you potentially won't be able to pay at maturity. By resting the line, you can show the lender that you have the ability to continue managing the credit line.
Contact your lender in advance of the HELOC expiration, preferably at least 30 days. This will give the lender time to review and approve an extension. If you request an extension the day before maturity, it will be more difficult. First, ask if the lender even considers extensions or if you will have to get an entirely new loan. If the lender agrees to an extension, you can move forward in the process. If the lender doesn't grant extensions, you may want to check other lenders to see what types of rates and terms are available since you have to refinance anyway.
Provide the lender with updated financial information and authorize it to run your credit report. It will use this information to calculate your debt-to-income ratio to make sure you can still handle the payments. If, for some reason, you can’t support the full line, the lender can still approve an extension at a reduced credit limit. Next, agree to a re-appraisal of your home. As with your income, the lender wants to see that you still have enough value in the collateral. Also like the income, it may approve an extension at a reduced amount if your home has decreased in value.
Extend the Line
Sign an extension document upon approval. This will be an amendment to the original HELOC note stating that you can still access your credit line until the new maturity date. The amount of time the HELOC can be extended will vary based on the lender’s policy and comfort level with your qualification.
- Bankers Online: HELOC Renewals & Extensions
- The Wall Street Journal: Home Equity Loans and HELOCS - Getting a Good Deal
- Bankrate: Home Equity Loans, HELOCS Tought to Find
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Carl Carabelli has been writing in various capacities for more than 15 years. He has utilized his creative writing skills to enhance his other ventures such as financial analysis, copywriting and contributing various articles and opinion pieces. Carabelli earned a bachelor's degree in communications from Seton Hall and has worked in banking, notably commercial lending, since 2001.