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Understand your HELOC Freeze or Reduction

You've been informed of a home equity line freeze, now here's what you need to know.

You have had your home equity line of credit (HELOC) for years without an issue, but now you have received a letter from your lender stating that your funds have been reduced or frozen. Before you can decide what you want to do, you have to understand what it means.

A HELOC freeze means that, beginning at the time of the notice, your line of credit is frozen, and you can no longer draw funds from your HELOC. A HELOC reduction occurs when there is a reduction in the credit limit on your home equity line. There are a number of reasons either of these changes in borrowing status can occur, and they are typically decided on a case-by-case basis.

Reasons for a HELOC freeze or reduction

Your lender will do periodic reviews of your home equity line(s) and will also continuously evaluate your ability to make payments. If any of the conditions that existed at the time you secured the loan change significantly, your HELOC can be subject to a freeze or HELOC reduction. Some of the most common reasons for an adjustment in your borrowing power are:

  • A loss in the value of your home:

    The amount of your HELOC is directly related to the appraised value of your home at the time you are approved for the loan. If the market turns and your home suffers a loss in appraisal value, your equity is affected as well. When this happens, your lender can enforce a HELOC reduction so that your borrowing limit is based off the equity that remains. If you are now in a situation of negative equity, you will see a HELOC freeze. It is not in the best interest for the borrower or the financial institution if you owe more on your line of credit than your house is worth.
  • Reasonable belief that you will not be able make payments:

    If your financial circumstances change and your lender has cause to reasonably believe that you will not be able to continue to make payments as you have in the past, a home equity line freeze is often instated. Causes for reasonable belief can range from a change in marital status to a loss of employment.
  • A change in your credit rating:

    Even if you have maintained a solid payment record with your lender, a change in your credit rating can still be enough reason for a HELOC freeze or HELOC reduction. Your credit rating reflects how big of a risk you are as a borrower. If your risk level changes, so can the amount of money available to you.

What you can do if a HELOC freeze or reduction is placed on your account

You have options if you are informed of a home equity line freeze or reduction. First, make sure that even during the freeze you continue to meet the payment conditions of your loan. While you can't draw on the line during a freeze, you're still expected to pay back what you have already borrowed.

Second, investigate the reason for the freeze and make an appeal if you feel the information is incorrect or changes again. It is always smart to talk to your lender directly about the reasons behind changes on your account.

Learn more about a HELOC with Citizens Bank

Whether you are a current Citizens Bank HELOC customer with questions about your account or interested in applying for a line of credit, we can help. You can start the home equity line of credit application process by answering a few questions online, and a Home Loan Advisor will contact you by the end of the next business day to complete your application and walk you through the next steps in the process.

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