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MSN.com
Brace for a
flood of foreclosures when boom-era HELOCs turn 10
Jerry Kronenberg
Millions of Americans will soon see monthly bills shoot up on home
equity lines of credit (HELOCs) taken out during the housing boom,
because HELOCs are going to start making homeowners pay both interest
and principal, not just interest. That's bad news because many
consumers are already underwater, meaning they owe more than their
places are worth, a RealtyTrac study shows.
"A lot of people were using their homes as ATMs during the bubble, and
that — coupled with the fact that home values have since gone down —
has backed a lot of them into a corner," says Daren Blomquist of
RealtyTrac, which recently analyzed home equity lines of credit on
millions of properties.
HELOCs are a type of second mortgage that homeowners use to tap into
equity that they've built up in their residences.
A bank will typically give you a revolving line of credit up to a
certain amount (often around $100,000) and let you use the money to buy
whatever you want. You typically have to pay just interest — no
principal — on your balance for the first decade of the loan's 30-year
term.
But after that, you generally have to begin paying interest and
principal — and RealtyTrac thinks that will soon create big problems
for millions of homeowners who got HELOCs between 2005 and 2008, just
as the housing market peaked...
Read the rest of the article at MSN.com
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