As discussed in an earlier post, many HELOC customers have received lender letters notifying them that their home equity line of credit has been canceled or frozen. In the declining market, many HELOC lenders have decided that overinflated home equity limits are too risky - especially when so many borrowers are facing foreclosure. Unfortunately, these HELOC freezes don’t only affect the “bad customers.” You could be stuck with a HELOC freeze even if you have excellent credit and have made every home payment on time.

If you have been the recipient of a HELOC freeze notice, there are still a few options you can take. Consider the following:

Refinance. Tell your lender that you’re taking your business elsewhere. If you search hard enough, you may still be able to find a HELOC lender with borrower-friendly cancellation clauses. If you want to play on the safe side, you could refinance to a home equity loan. That way, the lender won’t be able to freeze your line - you’ll already have the cash in one lump sum. Alternatively, you could refinance both your first and second mortgage into a single fixed-interest loan. Be aware that many HELOC lenders charge a cancellation fee for borrowers who refinance their loans.

Challenge your home’s assumed value. Many HELOC lenders are sending out freeze notices without evaluating individual homes. The use an automated valuation method (AVM) to determine which HELOCs have overinflated credit limits. If you received a HELOC freeze notice based on an automatic estimation of your property, you may be able to contest the value. To do so, you’ll need to contact the lender and pay for an appraisal from an agency that the lender approves in advance. This will only work if the lender’s estimation of your property is off by thousands of dollars. If the estimated value seems close to the actual value of your home, do not try this method.

Ask for a refund. If you paid application fees, lender fees, or annual fees, ask your lender to refund them. You shouldn’t have to pay for a HELOC that you cannot use.

See Also: How to Get the Best HELOC Rates and Terms

Tags | Heloc, heloc freeze, home equity loan, lenders, loans