Home Equity Line of Credit (HELOC) Freeze

Where You Need a Lawyer:

(This may not be the same place you live)

At No Cost! 

 What Is a Home Equity Line of Credit (HELOC)?

A Home Equity Line of Credit, typically abbreviated as a HELOC or HELOC term, is defined as a credit line offered by banks to homeowners that enables them to borrow money for a certain time. The credit line operates similarly to a credit card or a second home mortgage.

Generally speaking, homeowners tend to use HELOCs when they need extra financial support for high-priced items. Some different types of HELOC loans include:

  • Those for home renovation projects;
  • To pay off large hospital or medical bills;
  • To consolidate debts; or
  • To pay tuition for an educational program like college or graduate school.

Eventually, the amount borrowed under this credit line will need to be repaid to the lending institution with interest.

It should also be mentioned that homeowners will need to meet a lending institution’s detailed requirements before they may be eligible to apply and receive a HELOC. Some basic home equity line of credit terms that you may need to qualify for to gain approval include:

  • Having a good credit score (usually around a score of 620 or higher);
  • Having a reputable credit history;
  • Demonstrating you have a source of monthly income;
  • Having a debt-income ratio that is approximately 40% or less; and
  • Owning a home with a value of at least 15% more than what you still owe on your remaining mortgage.

In addition, you must check the terms of a HELOC for your particular lending institution since the above terms can differ by lender. Furthermore, if you need further help with obtaining a HELOC, you should consult with a real estate attorney in your area before you agree to any terms.

What Is a HELOC Freeze?

HELOC stands for Home Equity Line of Credit, a line of credit backed by the borrower’s home equity as collateral. These are major lines of credit, often with higher borrowing limits and lower interest rates. They can be similar to loans because such a valuable asset backs the credit line as the person’s home. They are often only reserved for major expenditures like children’s education funds or medical expenses.

A HELOC freeze happens when the lender stops, limits, or suspends the borrower’s access to the credit line. Under such conditions, the borrower won’t be able to access their credit, or the amount they can take out may be restricted. These depend on the overall conditions of the situation.

When Is a HELOC Freeze Imposed?

A HELOC freeze is normally imposed when:

  • The home has suffered a loss in value (this is determined through appraisal of the home)
  • The lender has a reasonable belief that the borrower won’t be able to make upcoming payments
  • The borrower has experienced (negative) changes in their credit ratings (this often indicates more risk on the part of the lender)

A HELOC freeze may also occur for other reasons, such as statutory violations like home equity fraud or misrepresentation of home.

Can I Contest a HELOC Freeze?

In some circumstances, it is possible to contest a HELOC freeze, especially if sudden changes conflict with your original contract agreement. Furthermore, contesting a freeze can be necessary, for example, if there has been evidence of misrepresentation or fraud on the lender’s part. Most courts tend to uphold freezes where the home has depreciated beyond 50% of its original value. If within this range, a court may support a borrower’s request to undo a freeze.

What are the Advantages of a Home Equity Line of Credit?

There are various advantages to using a home equity line of credit. They offer homeowners a way to borrow money with flexible terms. HELOCs are similar to credit cards, meaning that homeowners are generally permitted to make withdrawals whenever they want and can repay that amount daily or weekly.

Another advantage that is often associated with HELOCs and their accompanying credit lines is that each repayment of a withdrawal will reset the credit line because they offer revolving credit lines. This permits homeowners to continuously tap into that credit line and borrow up to the maximum amount, so long as they keep repaying it.

In addition to flexible terms and revolving credit lines, HELOCs tend to have a lower interest rate than other loans or credit lines. This can be useful for borrowers who can repay withdrawal funds immediately and keep costs low when borrowing for certain expenses, such as paying off medical bills.

Lastly, one other advantage to using HELOCs is that the withdrawal and repayment periods can be negotiated and modified by communicating with the lending institution. For instance, a bank may be willing to work with a homeowner who has a good credit score and good credit history to structure their HELOC in a way that is tailored to the homebuyer’s specific needs.

Are There Any Disadvantages of a Home Equity Line of Credit?

Homeowners should also be aware that there may be some potential disadvantages to using a home equity line of credit, such as paying penalties. For instance, if a homeowner fails to make payments on their withdrawals within the appropriate amount of time, they will risk losing their home or having their HELOC frozen or canceled.

Depending on the terms of a specific HELOC, the homeowner may be partially restricted or entirely prohibited from accessing their line of credit or HELOC account.

Another disadvantage associated with HELOCs is the interest rates. In general, HELOCs require homeowners to pay interest. Even when the homeowner is still within the withdrawal period, and the repayment amounts are not yet due, this may be the case. HELOC rates may fluctuate over time and can be volatile since the market sets the rates.

In addition to interest rates, HELOCs sometimes have attached loan conditions. For instance, a homeowner may need to pay interest on the withdrawal amounts and access the credit line. Homeowners often have to pay transactional fees on HELOCs and costs or fees to close their HELOC accounts.

Should I Hire a Lawyer to Help With a HELOC Freeze?

HELOC arrangements can often provide a person with reliable and sound sources of financing. Nevertheless, they are subject to specific rules and regulations, which might differ by state. You may wish to hire a qualified mortgage attorney near you if you have any conflicts or concerns regarding a HELOC freeze. Your attorney can provide you with legal advice and determine whether you have a viable cause of action. There have been some class action cases regarding HELOC freezes; your lawyer can provide legal representation if you need to attend court proceedings.

Events, limits, or suspends the borrower’s access to the credit line for various reasons. Under such conditions, the borrower won’t be able to access their credit, or the amount they can take out may be limited. These depend on the overall conditions of the situation.

A mortgage attorney will be able to explain the conditions of your HELOC and your obligations in clear and concise terms. Your attorney will also be able to help you negotiate different interest rates or withdrawal periods with your lending institution.

In addition, if you need to challenge the terms of a HELOC or if there is a dispute involving your obligations under a HELOC, your lawyer can provide legal representation as well as other legal services to assist in efficiently resolving such issues.

Law Library Disclaimer


16 people have successfully posted their cases

Find a Lawyer