When you apply for a home equity line of credit (HELOC), you do so with the idea of using the money for a specific purpose. And of course, you also have every intention of repaying the money based on the terms and conditions of your agreement with your lender.
However, you never know what the future could bring. And for that reason, there may come a point when you realize that you can’t repay your HELOC.
Should this happen, it’s important to do one thing above all else: contact your lender to discuss your situation and options.
At first, you may think it makes sense to hide from your lender. You assume that this is the best way to buy time until you can figure out what to do next. But this approach is dangerous, because it gives your lender reason to believe you’re unwilling to figure out a path forward.
Note: since a home equity line of credit uses your home as collateral, defaulting could result in losing your property to the lender.
If you’re unable to make your next HELOC payment, here are some basic steps you can take to ease your stress and hopefully get back on track:
Review your situation
In addition to reviewing the terms and conditions of your HELOC, take a close look at your monthly payment amount, the current balance of your line of credit, and how far behind you’ve fallen.
Contact your lender
For many, this is the most difficult step they’ll take. You have to admit that you can’t make your next payment. You also have to admit that you may not be able to get back on track in the near future. As scared as you may be, your lender is willing to work with you. They’d much rather figure out a solution—such as modifying the terms of your HELOC—than to take action against you and your property. Give them the chance to explain your options.
Pay what you can
Even if you can’t pay your HELOC in full, consider what you can send your lender until you have a better plan in place. If you’re going to do this, reach out to your lender by phone to let them know that you’re unable to pay the full amount. Being proactive goes a long way in showing that you want to make things right.
It’s not out of the question that your finances could take a turn for the worse at some point in the future. If this happens and it impacts your ability to make your HELOC payments, talk to your lender as soon as possible. You may be surprised by how much they’re willing to help.