How does the coronavirus crisis affect HELOCs?
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Even with the widespread rollout of vaccines and booster shots, the coronavirus pandemic continues to impact daily life, including causing challenges and uncertainty in all facets of the global economy. The rollercoaster ride triggered by regularly emerging COVID-19 variants has become the new normal, and that fact is impacting individuals and large corporations alike.
While some individuals are experiencing economic challenges due to job loss or reduced pay, many businesses are also facing uncertainty. As the crisis lingers on, banks, credit unions and other lenders continue to maintain a conservative approach to lending practices, including pausing some of their offerings.
How has the coronavirus affected the HELOC lending market?
One area that continues to be impacted by the new normal is the lending market for home equity lines of credit (HELOCs). During the COVID-19 pandemic, some of the largest banks in the United States announced that they would longer be accepting new applications for HELOCs.
Just as many individuals and families are looking to tighten their budgets and minimize their risks, banks and other lending institutions are doing the same. For individuals, minimizing risk might mean canceling a gym membership or opening a new credit card without an annual fee, but for banks, it includes taking steps like tightening up requirements for new loans or pausing HELOC applications.
Chase, for instance, announced in March 2020 that it would be freezing new HELOC applications and this continues to be the case as of 2022. The lender is not offering HELOCs at the moment, but it is allowing homeowners to access equity through cash-out refinance applications.
Many other lenders continue to offer HELOCs, including TD Bank, Bank of America and Citizens.
Banks that are not accepting new applications for HELOCs
As of 2022, a handful of banks have continued their suspension of HELOC applications:
- Chase: Chase announced that it would stop taking HELOC applications on April 17, 2020 and has not yet resumed this type of lending.
- Wells Fargo: Wells Fargo stopped accepting HELOC applications on May 1, 2020. The bank continues to maintain this policy due to market conditions.
- Citi: Citi stopped accepting HELOC applications on March 3, 2021. The bank has not yet resumed HELOC offerings and has also suspended fixed rate home equity loan applications.
What to do if you’re in the process of applying for a HELOC
If you’re in the process of applying for a HELOC right now, there’s nothing you need to urgently do. If you’ve submitted your application, you should continue through the process. Be sure to have all of your documents in place, just in case something does change the situation down the road.
What to do if you already have a HELOC
While most HELOC agreements do grant the lender the ability to cancel or call due a HELOC at any time, generally, most banks would only do that in the direst of situations.
If you do have an existing home equity line of credit, one change that you have likely already seen is a drop in your HELOC interest rate. Most HELOCs have an interest rate that is tied to the prime interest rate. The prime rate has fallen several times amid the pandemic, which means that the amount of interest you’re charged on an existing HELOC balance has likely also dropped. If you can, now may be a good time to make payments on your principal or convert to a fixed-rate HELOC if your lender allows it.
The COVID-19 pandemic appears to be far from over and this continues to limit opportunities for homeowners who are seeking to access equity amid increasing property values. HELOC programs at Chase, Wells Fargo and Citi remain suspended amid global economic uncertainties. There are still options however, for homeowners who want to tap into their equity through a line of credit. TD Bank, Bank of America and Citizens are all currently accepting HELOC applications.
For those who already have a HELOC or are in the process of applying with another bank, there is nothing urgent that you need to do. You should continue to use your HELOC as you would otherwise.