Homeowners have firm plans on how they will use their home equity loans, but few have read the fine print on repayment terms, according to a recent survey of borrowers.
A survey by the Toronto-based TD Bank found 43% of U.S. borrowers would be subject to resets on their home equity lines of credit within two years, which would end their ability to borrow more and start requiring higher minimum payments. However, 27% of respondents had no idea when their loans reset and 38% falsely believed that a reset would lower their payments.
"Many HELOCs allow borrowers to draw for 10 years making interest-only payments," Mike Kinane, SVP/home equity at TD Bank, said. "But when this draw period ends, borrowers are required to pay principal and interest, which may increase their monthly payments."
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