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Home >> Lending >> Home Equity
Frozen or Recuced Home Equity Line of Credit
With the recent decline in home values and the increases in credit defaults, you may find that your home equity line of credit has been frozen or decreased. If you had planned on using your equity for necessary repairs or improvement or even to pay down some other debt, the freeze or decrease may have caused you an unexpected surprise. While you should know that your line of credit maybe gone for the long term, you should also know that you have certain rights, some of which may help you restore your line of credit.
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Knowledge is Power
Like so many other things in life, knowledge is power, and fortunately for you, your lender is required by law to provide you with notice. Within three days after your credit line has been frozen or reduced, your lender must notify you in writing of any action taken by the lender and the reason why the lender has taken this action.
Understanding the Lender's Reasoning
Generally, your lender will have reduced your line of credit for two reasons: either your credit rating has declined or the value of your home has declined. Understanding your lender's reasoning will go a long way in helping you restore your line of credit.
If the problem is the decline in your home's value, you need to find out how great the difference is. If the difference is small, then perhaps you have made improvements to your home or you now owe less on the original mortgage than you did when the credit line was first opened. By informing the lender of these differences, you might be able to have your line restored.
Alternatively, if your credit rating is the problem rather than the house, then you should begin to work on your own credit rating. Reduce your debt on your credit cards, continue to pay your loans and credit cards on time, and do not apply for unnecessary credit. Unfortunately, improving your credit tends to take time.
Ask for Help
Once you think you have resolved the issue, request that the lender reinstate your line of credit. You should always put this request in writing. Once you have done so, the lender must investigate whether or not you are entitled to have the equity line of credit reinstated or unfrozen.
Fees, fees, fees
Remember, that like anything else, the bank may charge you fees necessary for making the investigation. These fees might include the cost of obtaining a new credit report or getting an additional appraisal on your home. If you are uncertain about the amount of fees you might be willing to pay in order to have your line of credit reinstated, speak to the lender. He should be able to give you a schedule of fees or information about the average charges.
Published on BankingQuestions.com 8/21/09
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