If your home equity line of credit has been reduced by your lender, think twice before reapplying. There are two major drawbacks to canceling your current HELOC and opening a new line:

First, your HELOC lender may be able to charge you an early cancellation fee.

Second, your home may appraise for a lot less than it did when you originally took out the line. Since home values have dropped nationwide, there’s a good chance that your home is worth less. In this case, your new HELOC could have a lower limit than your current one, even counting the reduction.

In some cases, the benefits of opening a new line outweigh the risks. Some homeowners live in areas that were not hit hard by the real estate bust. If they don’t mind paying a termination fee, a new HELOC could help them meet their financial goals or serve as a source of emergency funds.

See Also:

Facing a HELOC Freeze? Here’s Where to Send Your Complaints

Are Lenders Freezing Home Equity Lines Illegally?

Tags | Heloc, heloc freeze, heloc reduction, home equity line of credit