So DH and I had a Home Equity Line of Credit set up with Bank of America. We have our mortgage with them and our checking. Anyway we set up the home equity line when we got the mortgage in case of emergency. We haven’t used it, but it was comforting in case of emergency we could tap it for cash immediately.
But according to this article Bank of America isn’t the only company cutting lines of credit. Washington Mutual is doing the same to other homeowner’s as well.
Now we were given a $60k home equity line of credit. I think the interest rate was prime, not entirely sure. Anyway the other day we get a letter in the mail telling us that they have dropped our home equity line of credit limit to $5k.
My jaw dropped. Well I guess there goes my home equity. So apparently our home has lost a lot of value, and to cut their risk, Bank of America wishes to stop us from being able to borrow against our home. So what does that mean?
We put down 20% of our home, and currently have paid off an extra 4.5% of principal. So we “own” almost 25% of our home, it’s apparently decreased enough that we are unable to tap any equity. I am somewhat surprised that the bank feels our home has dropped 25%, especially since homes next to us are selling for more than what we currently owe. However, it could be that they refuse to extend lines of credit above 80%, so we basically have lost the 5% we paid down and then some.
So what can I do? Nothing. I guess we’ll keep making our mortgage payments, and wait out the market. Right now the plan is to stay till at least 6/2010 if not longer because of financial incentives at DH’s job. Perhaps in a 2 years we’ll gain some of our equity back. Right now I’m unsure exactly how much our house has lost on paper. I just have to keep enjoying our house and not worrying.
But the moral of the story? Don’t PANIC! Be ready to ride out a bad market, either in stocks or housing or anything, and don’t panic. Buy a house you like and enjoy living in, so if you are forced to stay longer you don’t mind. And don’t stress about paper losses, it’s not a loss until you sell.
4 responses so far ↓
1 Barb1954 // Oct 30, 2008 at 9:44 am
The cut in your HELOC limits have nothing to do with the equity in your home. All banks are cutting credit limits for HELOCs and credit cards. They don’t have the cash to lend money. The letter you received is just one more result of the credit crisis.
2 fengshui // Oct 30, 2008 at 1:04 pm
Wow. To lose 25% value??? That is a lot. It makes me feel so fortunate that my area hasn’t experienced that. Our home has appreciated over $12k since we bought it 2 years ago. Our taxed assessed value went up $6k and appraisal by $12k. However, think that Barb is correct that BOA isn’t basing this on the value of your home, but more that they can’t give you $60k….. HELOCS are nice. Unfortunately we used ours to finance the other 20% of our home since we didn’t use a DP.
3 Kristy // Oct 30, 2008 at 1:56 pm
I just heard the other day that there are two (big)cities that have not been hit by the housing crisis: Cleveland and Boston.
We have lost about 20% of value in our home.
4 LivingAlmostLarge // Oct 30, 2008 at 8:02 pm
The prices where we live, a suburb, really hasn’t gone down. I’ve watched prices, mostly because of the school district. Top school district so parents are constantly moving into the area for the schools.
I am not sure what the reason is for the removal of the HELOC. Maybe they can’t loan me $60k.
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