EUCLID

People worry about the variability of the interest rate on home equity loans. But there is a bigger danger than that and nobody seems to be talking about it. The lender can suspend your line of credit at any time without notice if they feel you home value has dropped to a point where their line of credit is no longer supported by the equity.

I am self-employed, so I rely on the line of credit as a cushion and also use it to work on my house when I get the time. Yesterday I got a letter saying that my entire, remaining line of credit was suspended. I have enough money on hand to pay bills for one month, so within one hour of opening the letter, I put my house on the market for sale.

I should have checked into this more, but I did ask my bank about a year ago whether the line of credit could be suspended before it expires in 2013. They told me that the terms were locked in and the line of credit could not be withdrawn. My mortgage originator told me the same thing.

So I have to sell my house within one month, it is the middle of winter, and there are a few things that need to be finished to make the house marketable. I don’t have any money to put into the house for even this minor work. If I knew this was coming, just last week I could have written a check for $73,000 and put it the bank. Of course, I would need to make payments on that balance, and the payments would come out of the balance. So even though it would secure the available credit line, it poses a considerable cost for interest.

If I only had written a check for $10,000 last week, I could easily finish the house to sell, but last week, I was not planning on selling the house because I did not know this was coming.