The coronavirus pandemic has affected all facets of the global economy, 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 evolves, banks, credit unions and other lenders are changing many aspects of how they lend money, including pausing some of their offerings.
How has the coronavirus affected the HELOC lending market?
One area that is undergoing change 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 are no longer 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 requiring almost all new mortgage applicants to have 20 percent down and at least a 700 FICO credit score. Bank of America also raised its credit score requirements for home equity products from 660 to 720.
Banks that are no longer accepting new applications for HELOCs
As of April 2, 2021, there are currently three banks that are no longer accepting new applications for home equity lines of credit:
- Chase: Chase announced that it would stop taking HELOC applications on April 17, 2020.
- Wells Fargo: Wells Fargo stopped accepting HELOC applications on May 1, 2020.
- Citi: Citi stopped accepting HELOC applications on March 3, 2021.
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
To date, no banks have announced any changes to existing home equity lines. 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 over the past few months, 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 has affected homeowners looking to sign up for new HELOCs. Chase, Wells Fargo and Citi have paused new HELOC applications. If you 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.