HELOC's tend to have a time period attached to them of something like 10 years that you can draw from it before you apply for another one. I haven't heard of banks closing an open equity line before though.
Wow. That sounds insane. There is so much that can happen in ten years that can make the credit/loan a much worse idea. Aren’t there still caveats in that option period about eg income, prime rate, LTV, etc?
The rate fluctuates up and down with the prime rate (usually prime + 1%).
The risks for the bank are the same risk with any type of loan. The difference here is that it’s secured against the home. I believe the max limit on it is 80% of the equity that you have in the home. Applying for an increase is the same as applying for an entirely new loan.
Just think about how many things can happen over a 15-30 year mortgage.
Right, I get that lots can change over the course of a regular mortgage, but that's usually accounted for by the down payment/LTV. Plus, they have already committed all the capital for it and it's a known quantity. For a LOC, it's just the option to draw, and anything from 0 to 100% of those dollars could be exercised at any time, when it may be harder for them to raise capital. Plus, I've heard stories -- albeit from the UK -- of HELOC exercise being denied once their employment/income change.
